House warming: Banks plan new products

With the festive season round the corner, more and more scheduled banks have begun to innovate their housing loan products from ‘home buying’ to ‘house warming’ to tap this segment.

For starters, Federal Bank this week announced a festive season offer “House Warming Loan” that can be used by customers to meet expenses related to house warming. This will be considered as a personal loan and it will be offered to both existing as well as new customers, at a rate of 2 per cent over the housing loan.

The Kochi-headquartered bank offers personal loan at interest between 17-19 per cent, while its home loans at 10.45 per cent, irrespective of the loan amount. “So this means, the house warming loan will be offered at 12.45 per cent, which is much lower than the personal loan rate,” said Federal Bank Head (Retail Business) D Sampath.

The quantum of loan can be up to 5 per cent of the Housing Loan limit with a maximum of Rs 2 lakh, Sampath said, adding, “This product will enable customers to conduct house warming ceremonies without resorting to raising short-term loans at high rates of interest.” This offer is valid from November 1 to December 31, 2012.

Prior to this, ICICI Bank last week launched a new home loan product for new customers with ‘cashback’ offer on each loan instalment which offers customers 1 per cent cashback on every equated monthly instalment (EMI) for the entire loan tenure.

As a part of this offer, customers will be provided the option of renewable fixed interest rates for the entire tenure. The cashback will start accruing from the first EMI month onwards and will get credited into the customer’s account after the completion of 36 EMI months. Subsequently, the 1 per cent cashback will be accumulated with every EMI month and will get credited to the customer’s account after every 12 EMI months.

After the completion of initial fixed rate tenure, if a customer decides to renew his fixed rate on home loan, the renewable fixed rate will be decided on the prevailing ICICI Bank base rate at that point of time, plus the margin decided at the time of sanction of the loan.

IDBI Bank too has innovated with its offerings for the home loan customers last month, with lower interest rates for floating rate loans and also for fixed rate loans. While the floating interest rates in respect of all loans have been reduced by 25 bps subject to base rate, the fixed rate on home loans has been reduced to 11.50 per cent a year for all loans for a period of 3 to 5 years. It has also reduced processing fee by 50 per cent or more on home loans.

Further, the bank also effected certain changes in card rates applicable to some of the allied home loan products. This measure by the IDBI Bank, come right after Axis Bank offered to bear the cost of 12 home loan EMIs of the customers, if they paid their dues on time. With innovation and flexible offerings, one can clearly notice that the Rs 4 lakh crore market, is being fought with ferociousness.

The State Bank of India (SBI) remains a sought after choice in need of home loans, with several home loan products and related schemes to cater to the diverse age group of people. It offers loan amount of Rs 30 lakh, Rs 30-75 lakh and above Rs 75 lakh with a base rate of 0.75, 1 and 1.25 per cent respectively, whose effective rate works out to 10.75 per cent, 11 per cent and 11.25 per cent respectively.

With innovation and flexible offerings, one can clearly notice that the Rs 4-lakh crore market, is being fought with ferocity with SBI topping the list in terms of market share.
In terms of market share, SBI emerges first with 19 per cent of the market share, followed by HDFC Bank holding 17 per cent. Other competitors include ICICI Home Finance with around 13 per cent, HUDCO (Housing Urban Development Corporation) with 8 per cent, and IDBI Bank with around 4-6 per cent.