State Bank of India (SBI) has decided to cut interest rates on home loans of up to Rs 30 lakh by 25 basis points (100bps = 1percentage point) to 8.35%. On home loans more than Rs 30 lakh, SBI cut the rate to 8.50% from 8.60%.

Announcing the rate cut, SBI said that this was in keeping with the Prime Minister’s vision of providing ‘Housing for All’ by 2022. Rajnish Kumar, MD, SBI, said,“This limited period offer is to give a boost to affordable housing. There are many potential buyers who are sitting on the fence right now -unsure of whether to buy or not. Home loan rates were already quite low and there was also a government subsidy under the Prime Minister’s Awas Yojana (PMAY). With this reduction we expect the fence sitters to take a decision.” He added that the bank will take a decision on July 31 on extending the scheme.

Under the PMAY, loans of up to Rs 9 lakh and up to Rs 12 lakh receive interest subsidy of four percent and three percent respectively, while in rural areas loans up to Rs 2 lakh will get an interest subvention of three percent.The value of the subsidy amounts to Rs 2.67 lakh for an eligible borrower.

Meanwhile, housing finance company HDFC has stated that it had already cut rates for new customers to 8.5% in February. Other large lenders including ICICI Bank and Axis Bank offer home loans at 8.65%. DBS Bank, a new entrant in the home loan market, made its foray into the Indian mass market with the launch of the Digibank ‘mobile only’ zero balance account. The bank is now offering retail borrowers home loans at 8.4% with zero processing fees. Meanwhile, Bank of India has reduced its Marginal Cost of funds-based Lending Rate (MCLR) by 10bps from 8.50% to 8.40% with effect from May 7, 2017.

There is increased competition among banks for home loans which accounted for half of all credit growth in FY17. SBI’s Kumar added, “We have a 26% market share in home loans and we expect our Rs 2.3-lakh-crore portfolio to grow 17-18% this year.”