The biggest reduction is expected from home loans over Rs 75 lakh. At present, the rates of home loans are tied to the loan amount. The rates are lowest for loans up to Rs 30 lakh and increase with the size of the loan.
For example, the State Bank of India charges 7% on the loan up to Rs 30 lakh and 7.25% on the loan between Rs 30 lakh and Rs 75 lakh. The interest rates on loans above Rs 75 lakh are 7.35%. Likewise, the Punjab National Bank kept it at 7.15%, 7.25% and 7.30% to 7.40% in the three loan tranches. HDFC Limited also charges differential rates of 6.95% on loans up to Rs 30 lakh and 7.05% above. Most major lenders charge 5 basis points less when there is a female borrower.
The gradual increase in rates is explained by capital requirements that increase with the amount of the loan. At present, a bank is only required to maintain in capital 35% of the prescribed capital for home loans up to Rs 30 lakh. It is 50% when the loan amount is between Rs 30 lakh and Rs 75 lakh and 75% for loans above Rs 75 lakh.
Unlike an unsecured personal loan, which requires the bank to maintain 100% of the prescribed capital, lenders are allowed to have lower principal for home loans as they are considered safe because of the security. Apart from the loan amount, the capital requirements also depend on the loan amount relative to the property’s value, also known as the loan-to-value ratio (LTV). If the buyer contributes 20% of the value of the property, as a personal contribution, and borrows the remaining 80%, the capital required for the bank is less and this is passed on to the customer in the form of lower rates. .
In its Friday credit policy, the RBI indicated that from now until March 2022, the required capital will depend only on the LTV and not on the loan amount. “The loans must attract a 35% risk weight when the LTV is less than or equal to 80%, and a risk weight of 50% when the LTV is greater than 80% but less than or equal to 90%.”
A senior banker said interest rates on large home loans are expected to align with lower mortgage rates, which are currently around 7%. Capital-constrained public sector banks, in particular, would be eager to make large loans because the cost of servicing them is lower than small loans.
To concern Interest rates on home loans above Rs 30 lakh are expected to drop