An interest rate war is brewing in the home loan segment this festive season. Development Credit Bank (DCB) and GIC Housing are offering home loans below the psychological 8% level. DCB, which recently entered the segment, is charging 7.95% for loans up to Rs 5 crore at fixed interest rate for the first year and floating rates from second year onwards.

“While affordable housing is the buzzword these days, the market would get a further boost if attractive financing options are available,” says Praveen Kutty, executive V-P and head, retail banking, DCB. Central Bank of India and Punjab National Bank have waived off processing fees and documentation charges on certain loans. While one would argue that there isn’t much difference between 7.95% and 8% home loans, bankers say that its basically a psychological pricing to get more borrowers into their fold.

According to observers, borrowers prefer low interest bearing home loan accounts of nationalised banks over private banks. “While there has been demand in the affordable home loan segment (up to Rs 30 lakh), the activity in the upper bracket (loans above Rs 50 lakh) has mostly revolved around restructuring or takeover of such accounts by another bank,” says VS Reddy, MD, Lakshmi Vilas Bank.

Private sector bankers maintain that borrowers should not fall flat over the sub 8% schemes and exercise caution before signing on the dotted line. “Many of these 8% schemes are of short duration, between three months and one year. But for us, housing finance is the only product…unlike some of the other lenders for whom home loans maybe just one of their products,” says Renu Sud Karnad, joint MD, HDFC. The company is offering a floating rate of 8.75% for loans up to Rs 15 lakh, 9% (Rs 15-50 lakh) and 9.5% for loans above Rs 50 lakh up to 20 years. HDFC is expecting its disbursals to grow by at least 20% this year.

Borrowers say such switch over is not easy. IT professional R Ram who had taken a Rs 8 lakh home loan from a private bank at 12% is trying to change account to a nationalised bank for sometime now. “I am half way through my EMI repayment and have been trying to shift my account for sometime now but it’s not happening. First, the bank with whom I have a home loan said I have to pay a hefty penalty and transfer fees. After I agreed to that, they are now insisting that they need clearance from head office in Mumbai. The bank is saying some more documentation needs to be completed and more procedures need to be followed. It is quite frustrating.”

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