Commercial banks have cut home, automobile and personal loan rates despite the hardening of interest rates and shrinking margins in an attempt to grab a larger share of the increased spending during the festival season.
State Bank of India, the country's largest bank, has taken the most aggressive stance, cutting the home loan rate by 125 basis points (one basis point is one-hundredth of a per cent) to 7.5 per cent for the floating rate option and to 8 per cent for the fixed rate option.
It has reduced personal loan rates by 50 basis points. Punjab National Bank has reduced interest rates on housing, personal and car loans by an identical margin. Bank of Baroda, too, has cut its home loan rates by 50 basis points.
IDBI Home Finance, the home loan arm of IDBI Bank, has reduced its home loan rate by 25 basis points to 7.25 per cent. The reduced interest rate offers will continue till December 31.
Housing Development Finance Corporation -- the largest home finance company in the country -- has reduced its rates by 25 to 50 basis points on its floating rate loans. For loans up to Rs 500,000, HDFC is charging 7.75 per cent while loans above Rs 500,000 attract the 7.5 per cent rate.
These rates will remain in force till the end of October. Earlier, HDFC was charging 8.25 per cent for loans up to Rs 300,000, 8 per cent for loans between Rs 300,000 and Rs 10 lakh (Rs 1 million) and 7.75 per cent for loans above Rs 10 lakh.
Bank of Baroda and PNB have extended the festival interest rate bonanza to small traders too. BoB has cut the interest rate on loans to traders and small businessmen by 1 per cent, while PNB is offering loans to traders at 50 basis points lower than the rack rate. A 25-30 per cent increase in demand for loans during festival season makes retail credit attractive through discounts.
A few banks, however, have decided against going in for any cut in interest rates as home loans are very competitively priced in the face of intensifying competition and they cannot afford to absorb further pressure on interest margins.
"Essentially, we do not tamper with the yield but design an attractive loan package for customers, like including a plasma television set or jewellery in the package," said Sujon Sinha, head, retail assets, at UTI Bank.