Other Banks Can Follow SBI's Footsteps and Fix Home Loan Rates at 8%

Following in State Bank of India's (SBI's) footsteps, other state-run banks may also come out with scheme offering home loan at a fixed rate of 8%. The Indian Banks' Association (IBA) would review the response of borrowers towards the SBI scheme after three weeks and if it finds that there has been a good response, other banks will follow suit, according to a top IBA official. "We would review the consumer's response (towards the scheme) and then take a decision accordingly," IBA chairman T S Narayanasamy told ET on the sidelines of a meeting here on Monday. Mr Narayanasamy is also the chairman of Bank of India (BoI). He said the review would be conducted after the completion of three weeks of the launch of the scheme.Last week, SBI had announced that it would offer home loans at a flat rate of 8% to all borrowers and would freeze this rate for one year. The chairman of one of the major banks, who asked not to be named, said SBI can afford to lend at such cheap rate as it has one of the best current and savings account (CASA) deposit ratio. CASA deposits are the cheapest source of funds for a bank and a high CASA deposit ratio brings down their average cost of funds. This in turn helps the bank in offering cheaper credit while maintaining their net interest margin (NIM). NIM is the difference between the rates at which banks borrow and lend.SBI has a CASA deposit of 39.71% as a percentage of total deposits of the bank. Other banks with CASA deposits in that range include Punjab National Bank, Dena Bank, Bank of Maharashtra and United Bank of India. All these banks have about 40% in their CASA deposits as at the end of September 2008 according to data available with the finance ministry. Another bank chairman, who also asked not to be named, said SBI has taken a very calculated step and there is a possibility that the move can be emulated by other banks. Last week, the Reserve Bank of India (RBI) had said there was scope for further rate cuts by banks as the central bank has provided them enough cushion to do so. The RBI had expressed these views in its third quarter review of the annual monetary policy. Source: IndianRealtyNews