Having excessive liquidity as general credit demand is still way below the desired levels, leading home loan players — State Bank of India, HDFC, ICICI Bank and Kotak Mahindra Bank — have slashed their rates to a decadal low, leaving consumers spoilt for choices.
The interest rate war comes as banks are sitting on huge excess liquidity which as of last week was over Rs 6.5 lakh crore, according to Care Ratings. The rate war also comes on the back of continuous prodding by the monetary authority which has slashed the repo rates by a whopping 200 bps since March 2020 to 4 per cent to help revive the economy ravaged by the pandemic.
According to the RBI data, home loan growth decelerated in FY21 due to the pandemic, though the decline in fact began in March 2020. From 17.5 per cent in January 2020, home loan growth halved to 7.7 per cent in January 2021. For banks, housing loans are safe bet in the current scenario as the risk of default is minimal with a gross NPA of just 0.67 per cent for the SBI and for HDFC it is under 1 per cent.Banks are hoping that the nascent economic recovery will lead to more home purchases. Consumers too have advantages — attractive property prices due to the pandemic and the resultant reduction in stamp duty by many states due to the outbreak.