Public sector banks may not raise home loan rates, private lenders to hike rates

Public sector banks will resist raising rates for home loan borrowers in near future as they continue to face pressure from the finance ministry to protect individuals.


The tight liquidity conditions prevailing for over a month now prompted leading private banks like HDFC Bank and Axis Bank to raise rates. But public sector banks did not raise rates even as it hurts their profitability due to instructions from the finance ministry.

For most public sector banks, the share of home loan in their portfolio ranges from 10% to 20% with a growth rate of 15% per annum.

India's largest bank, State Bank of India, said that it has adequate liquidity in hand. "On liquidity side, SBI does not have any stress and, in fact, we have gained market share by 40 basis points and growing at 15%. Problems in the market have helped us as many corporates are shifting money from mutual funds to us," said Arundhati Bhattacharya, MD and CFO of SBI, in an interview with ET last week.

Also, with SBI, the market leader, offering competitive rates - which offers lower home loan rates - at 9.95% for 30 lakh and 10.10% for loans above 30 lakh, most banks would resist raising rates on their home loan portfolio - the only segment where the loan is fully covered, risk is widespread and has lower share of default. Secondly, a sharp rise in default in the corporate loan books has prompted banks to focus on the retail sector.

A section of bankers say that the delay in raising rates is costing banks dearly. "But subtle pressure from the North Block continues to prevail. We are waiting for banks, which took initiatives to cut rates early July, to roll back rates. This will give us comfort to raise rates," said a bank chief who did not wish to be named.

A number of banks like Union Bank of India, Canara Bank and Bank of India cut lending rates soon after a meeting with the finance minister (July 3) but just before the RBI took liquidity tightening measures (July 15) to support the fall in the rupee. Andhra Bank is the only PSU bank which has rolled back lending rate to 10.25% last week.


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