SBI offers personal loans to existing borrowers at housing loan rates

MUMBAI: State Bank of India is offering a bonanza to its existing home loan customers. They can take personal, or top-up, loans at the same rate that they are paying on home loans under a limited-period offer from the nation's top lender.

In effect, an existing borrower can take a personal loan at 10.15%, provided he had been paying his home loan EMIs on time. For women, this will be even cheaper at 10.10%. The rates imply a 0.35-0.40 percentage point cut in the top-up loan rates that SBI has been charging. It charges 13.50-18.50% on personal loans to other customers.

A senior SBI official, who did not want to be named, said the rate on top-up loans was lowered to boost the bank's loan book. "Also it is a safe bet for the bank to attract their existing customers with good track record to borrow from them rather than approaching its rival banks."

The rate reduction comes at a time when RBI has signalled a softer interest rate regime by cutting policy rates twice - both by a quarter percentage point - in 2015. Despite the signal from the central bank and a nudge from the finance ministry, banks have mostly stayed away from cutting rates, citing subdued demand for loans and arguing that a reduction would hurt their bottom lines in the final quarter. Most banks have pegged their base rate - the rate below which they don't lend - in the range of 10% to 10.25%.

To attract customers, SBI has also waived off the processing fee, but at the same time said the reduction was valid only for a limited period. The bank plans to charge its existing home-loan borrowers 10.5% for top-up loans from next fiscal year. A woman home-loan borrower can take up to Rs 50 lakh at 10.10%.The tenure of the top-up loan will be linked to the customer's outstanding tenure of the home loan. Top-up loans between Rs 50 lakh and Rs 2 crore will cost 10.75%. For Rs 2 crore to Rs 5 crore, the rate will be 11.25%. Analysts say the move will help SBI achieve its loan growth targets.

The bank has lowered its credit growth target to 11% for this fiscal year through March from the originally planned 14%.

"Even 11% (growth in credit) is also a stretch," chairman Arundhati Bhattacharya had said while announcing third-quarter results.The bank's advances portfolio rose just 2% in the first nine months of this fiscal year.

SBI's home-loan book rose 13.2% year-over-year to about Rs 1.56 lakh crore as of February 2015. Top-up loans totalled Rs 4,800 crore.