Are current interest rates enough to revive banks' home loan disbursal?

State Bank of India (SBI), for different loan amounts and tenures, has trimmed home loan interest rates in the range of 50 bps – 90 basis points. This was followed by other banks like Andhra Bank, Dena Bank, ICICI Bank Ltd and Kotak Mahindra Bank and Punjab National Bank (PNB) to follow suit. 

Home loan interest rates are now lowest in six years.

Ramaswamy Subramanian Co-founder and CEO at Finanzmart said, "It is a good time for genuine home buyer opting for home loans at this rate because these interest rates are at its lowest now.  In fact in 2-3 years the rates have been progressively coming down.”

Data compiled by the Reserve Bank of India (RBI) show that housing loan growth stood at 9.2% between the period March 2016 – November 25, 2016, compared to 12.2% growth in the similar period of the previous year.

In the November month, personal housing loans was over Rs 8.15 lakh crore. However, on year-on-year basis, it grew by 15.6% in November 2016, against the growth of 18.6% in the year 2014-2015.

Vijay Agrawal, Executive Director, Equirus Capital said, "Cut in interest rates is likely to give a big push in offtake. Reduction in home loan EMI will increase purchasing capacity of home buyers."

He added, "It is expected that 1% reduction in home loan rate will increase purchasing capacity by around Rs 10 lakh, which will in turn increase buying capacity of home buyers. New housing demand will be created due to increase in buying capacity of buyers as well as low interest rates that are likely to prevail for some time. He feels that housing demand will pick up soon."

Ramratthinam S , CEO, Muthoot Homefin said, "“The Government’s decision to provide interest subvention for loans upto Rs 12 Lakhs under the Prime Ministers Awas Yojana (PMAY) coupled with increase in the number of homes to be built in rural areas under PMAY by 33% is expected to boost low income housing primarily in peripheral areas of urban localities across the country and in Tier 2 and Tier 3 locations.These measures are highly positive for the affordable housing segment and this would help realize the Housing for All objective.”