The holiday season will not be the same this year. Covid-19 infections are still high. Mobility is restricted. Many consumers are grappling with the loss of jobs and income.
Against this backdrop, lenders are going the extra mile to make home and auto loans attractive. The central bank’s recent regulatory easing, aimed at stimulating consumer demand during the holiday season, has also helped.
Wednesday, National Bank of India announced that its home loan customers will get an interest rate concession up to 20 basis points based on their credit score for properties costing Rs 75 lakh and above. Those applying through the bank’s digital banking app and female borrowers will be eligible for an additional discount of 5 basis points each.
This brings SBI home loan rates to their lowest in years, with a subset of borrowers able to take funds at less than 7%. Bank of Barodaalso, offers 7% as its lowest rate with a concession for balance transfers, while peers National Bank of Punjab offers a slightly higher rate than that.
Private banks match some of these offers, going through listings on Paisabazaar.com. HDFC Ltd. offers festive season rates starting at 6.9%, the aggregator’s website says.
“We expect this holiday season to be a very crucial time for improving demand for home loans as consumers buy new homes and increase residential construction activity across the country,” said HT Solanki, head of mortgages and other retail assets at Bank of Baroda Solanki expects potential customers to be incentivized to transfer existing home loans to the bank due to competitive pricing and waiving of processing fees.
CS Setty, managing director of SBI, also hopes that the take-up of home loans will improve. “As people spend more time indoors, they prefer owning a house and a bigger one at that,” he said. Setty’s optimism is based on a combination of factors, ranging from improved home affordability in some markets, special offers from builders, concessions from state governments and, most importantly, a push from lenders.
Some of the home loan offers come at the right time but would have happened anyway after central bank announcements earlier this month, said Ratan Chaudhary, head of home loans at Paisabazaar. On October 9, Governor Shaktikanta Das announced that the RBI had rationalized risk weightings linking them only to loan-to-value ratios of new home loans sanctioned through March 31, 2022.
Home loan applications in Paisabazaar are already higher by around 10-12% for affordable homes below Rs 30 lakh. In the more expensive segments, inquiries are around 95% of pre-pandemic levels.
“With the cheapest home loans they have been in over a decade, existing customers will also switch to cheaper home loan rates. In fact, most banks are now focusing on home loan buyouts,” Chaudhary said.
While other banks are expected to follow SBI announcements to discount interest rates based on loan value, some such as HDFC Bank Ltd. and ICICI Bank Ltd. also offer a concession of around 0.5% for blue-chip property developer projects. Even other smaller non-banks, though unable to compete on interest rates, are waiving processing fees and extending other benefits, Chaudhary said.
In some cases, developers partner with lenders and offer concessions on their end. For example, Tata Housing has announced a program that allows customers to pay a fixed interest rate of 3.99% for a period of one year, with the rest borne by the company. Customers are looking for perks that lower their down payment and are also looking for festive deals with big discounts, said Sanjay Dutt, managing director and chief executive of Tata Realty & Infrastructure Ltd., quoted in a statement on the program.
Are banks just as aggressive on car loans?
A similar story is also playing out for car loans.
The State Bank of India and the Bank of Baroda are both offering a holiday season concession of up to 25 basis points on car loans. A press release from Axis Bank Ltd. claims 100% down the road financing for auto loans. The Federal Bank is offering to finance 95% of car loans from Hyundai Motor India Pvt. ltd. and Maruti Suzuki India Ltd.
Dealers, however, report contradictory trends. Banks, which previously financed 80-85% of the road price of the vehicle, now only finance 65%-70%, BloombergQuint reported last month.
Many lenders have announced car loan interest rate concessions over the holiday season to grab a bigger share of the market, Chaudhary said. Processing fees have also been waived, as often happens in these months.
Setty said customers, still wary of the pandemic, now prefer their own cars. Demand is picking up and is unlikely to be transitory. The recovery seen in July and August was likely due to pent-up demand, he said. Sales in September and October continue to show improvement, he added.
Vyomesh Kapasi, managing director of Kotak Mahindra Prime Ltd., agreed. In the new normal, the goal of buying a car to keep your family safe is also very important, Kapasi said. Thus, auto loans are experiencing a strong rebound.
The optimism is not yet reflected in the data.
Bank credit rose 6.02% in August 2020, the lowest since August 2016. Housing loans rose 11.1% in the same month, compared to 16.6% last year. But auto loans rose 8.4% from 3.7% in the same period last year.
Will lender efforts help accelerate credit growth? “Absoutely!” Setty said. “We’re already seeing greater traction across all sectors and a general improvement in picking,” he said.
Pent-up demand due to lockdowns as well as advertised deals may push sales to pre-covid levels, said Mayank Kachhwaha, co-founder and COO at IndiaLends. While home loan applications continue to approach pre-covid levels, applications for other personal loans are still around 60-65%, Kachhwaha said. These will likely take longer to recover, he said.