PSBs extend home loan tenor up to 30 years as rate hikes bite hard

The finance ministry had written to all public sector banks (PSBs) to increase the tenure of loans instead of raising the equated monthly instalments (EMIs) in the light of rising interest rates

Mumbai: Fearing credit turning bad assets in the wake of high interest rates, a number of state-run banks, led by State Bank of India (SBI), have decided to raise home loan tenors to 25-30 years or till the borrower touches 70—well past their working age, reports PTI.

Earlier, the finance ministry had written to all public sector banks (PSBs) to increase the tenure of loans instead of raising the equated monthly instalments (EMIs) in the light of rising interest rates.

SBI took the lead and has reportedly decided to extend the tenor of home loans by 10 years or up to 30 years, while others are doing this on request.

“We have decided to increase the home loan tenure by up to 10 years to 30 years and up to the age of 70, depending on the customer profile. Our managing director (S Krishna Kumar), is likely to announce this on Saturday,” a senior SBI official told PTI, requesting anonymity.

Fearing more bad loans in the system as interest rates kept on rising following tight monetary policy being under taken by Reserve Bank of India (RBI), the finance ministry had recently written to the PSBs to increase the loan tenor instead of increasing the monthly repayment amount.

However, all the banks that PTI contacted for reaction on the issue, said this guideline has been in existence for many years now and they had been implementing it on case to case basis.

Over the past 19 months, RBI has increased policy rate by 325 basis points (one basis point is one-hundredth of a per cent) to 8.25% to batten down stubbornly high inflation, which stood at 9.72% in September.

Generally, home loans are scheduled for 20 years and in some cases up to 25 years, if the borrower will not be retiring by then at 65.

Typically on an average, a 25 bps spike in interest rate can push up EMI for a 20-year loan by Rs17 per lakh. With regular hikes by RBI, EMIs have been stretched too far.

The RBI has hiked policy rates by 325 basis points since March 2010, following which most banks have raised lending rates by up to 250-300 bps making loans dearer.

Central Bank of India chairman and managing director MV Tanksale, too, said his bank is open to requests from the borrowers over increasing loan tenors.

“The important question is the cash flow of the borrower, if it increases, he/she does not require an increase and vice versa. I think this has been a very proactive step on the part of the government to issue such a directive.”

When contacted the Mangalore-based Syndicate Bank chairman and managing director B Seth said, “We have always been giving this option to our customers, even before the ministry’s letter. The whole point is to keep our asset quality and we offer such options to customers on request.”

“At Syndicate we are not bothered about the age of the borrower, if the history of his or her banking behaviour is satisfactory and if the customer is capable of paying even if one is not working, we have no problem.”

Similarly, Canara Bank chairman and managing director S Raman said the lender has been extending longer tenure to its customers for quite some time now on a loan-by-loan basis.

“We are not looking at age of the borrower, but his source of income, including pensions and retirement benefits.”

When asked if there been an increase in any such request, the Bangalore-based bank’s executive director AK Gupta, there has been only a negligible demand for increasing the tenor. Similarly, there has not been any visible spike in home loan non-performing assets.

Bank of Baroda executive director RK Bakshi said his bank also offers customers the option to increase payment schedule. “We are limiting this at up to 25 years. To extend it further we have to discus this at the board.”


Decision on $500 million overseas bonds issue soon: SBI

SBI will take a decision next month on its proposed overseas bond issue and the amount to be raised through the issue. Managing director for international banking, Hemant Contractor said it would be a ‘benchmark issue’, which normally means the minimum issue size would be of at least $500 million

Mumbai: State Bank of India (SBI), the country’s largest lender which was recently downgraded by ratings agency Moody’s will decide on an over $500 million bonds issue next month, reports PTI.

“That’s a call we would be taking in November ... whether to go for it at all, and if we do decide to go in, then the extent of the amount,” the bank’s managing director for international banking, Hemant Contractor, told reporters on Friday.

He said it would be a ‘benchmark issue’, which normally means the minimum issue size would be of at least $500 million.

The bank had earlier announced it would double its MTN borrowings to shore up the Tier-II capital to $10 billion this fiscal.

SBI chairman Pratip Chaudhuri had in September hinted at raising over $1 billion in November, but sounded sceptical following the downgrade by Moody’s.

On 4th October, Moody’s Investors Service had cut the rating on SBI’s financial strength to ‘D+’ from ‘C-’ and pointed to issues with asset quality and lower capital adequacy.

Ratings downgrades usually increase borrowing costs for financial institutions.

Mr Contractor said the rates had gone up in international markets due to lower liquidity conditions, but did not answer when asked if the downgrade would have a bearing on the bank’s plans.

However, despite the rising costs, customers still have an appetite for loans given the interest rates differentials between the rupee and dollar borrowings, he said.

On expectations from the RBI’s monetary policy meet on Tuesday, Mr Contractor declined to give a specific answer, but hinted the bank might not be passing the hike on to borrowers if RBI again raises key rates.

“Till now we have passed on (rate hikes to customer), but we have to look at asset quality and things like that....With credit growth slowing, the ability of banks to pass on is also a little limited.”

On the bank’s international operations, Mr Contractor said the asset quality had grown by up to 13% this fiscal and the bank was not facing much the impact of the slowdown in major economies.

“Our business is India-centric and domestic economy is growing, so we are not impacted,” he said.

The bank opened a branch in Saudi Arabia’s Jeddah last month and is planning to open one in Qatar next month, he said.

SBI on Friday launched a Saudi riyal-denominated prepaid debit card, aimed at business travellers and Haj pilgrims.

The riyal is the seventh currency to be offered on prepaid card by the bank, which is now planning to introduce Singapore dollar soon, Mr Contractor said.

A senior SBI official said the bank has been clocking deposits of $100 million annually on the international prepaid cards business.


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