SBI, Central Bank, Syndicate, Canara extend home loan tenor upto 30 years as rate hikes bite hard

MUMBAI: After goading by the Government and fearing risks to asset quality, a number of state-run banks, led by SBI, Central Bank, Syndicate and Canara, have decided to raise home loan tenors to 25 to 30 years or till the borrower touches 70, well past the working age.

State Bank of India 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 tomorrow," a senior SBI official told PTI, requesting anonymity. Kumar, who heads the national banking vertical at SBI, could not be reached for comments.

Fearing more bad loans in the system as interest kept on rising following tight monetary policy being under taken by RBI, the Finance Ministry had recently written to the public sector banks (PSBs) to increase the loan tenor instead of increasing the monthly repayment (EMI) 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 interest rate by 325 basis points (one basis point is one-hundredth of a percent) to 8.25 per cent to batten down stubbornly high inflation, which stood at 9.72 per cent 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 Rs 17 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 M V 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."

Source: EconomicTimes