Most lenders such as Punjab National Bank, Corporation Bank, United Bank of India and Bank of Maharashtra have decided not to extend the special home loan scheme which ended on March 31, even as the country’s largest bank, State Bank of India, decided to 
extend the special scheme by a month.
SBI will offer a fixed rate of interest at 8% for first year and 9% for the second and third year, irrespective of the loan amount. In the past, SBI offered a fixed rate of 8.5% for the second and third year if the loan size was less than Rs 50 lakh and charged 9% for loans above Rs 50 lakh in the second and third year.
The bank will continue to offer 8% fixed rate for all home loan borrowers. Interest rates on loan from the fourth year will be linked to the then prevailing prime lending rates.
Officials from a PSU bank which withdrew the scheme said: “Our management decided to withdraw the scheme since they feel that RBI is not very happy about it.” PNB, Bank of Maharashtra, Corporation Bank and United Bank of India will now offer home loan rates linked to their PLR, although they have not yet specified the new rates that will be applicable from April 1.
SBI, on the other hand, felt that there is a case for extending it. “We have adequate liquidity coupled with a huge demand for such loans from home buyers. Also, we feel that we can sustain the scheme at these rates,” said a senior SBI official on condition of anonymity. However, SBI has decided to discontinue the 8% fixed rate scheme for five years for a loan of Rs 5 lakh.
“SBI is booking Rs 2,500 crore of loans every month under the special scheme and the year on year home loan portfolio has risen by 30%,” said SBI officials. “We will decide on whether or not to continue the special home loan scheme after RBI announces its annual policy on April 20.”
In the last one month, several banks withdrew the special home scheme, probably in response to concerns expressed by RBI in January when bank termed such scheme as teaser loans — since rates are low in the initial period and may rise in the subsequent years.
RBI had told banks that they should judge customers’ payment ability over a period of time while giving such loans. Housing finance company HDFC and banks like ICICI Bank, Axis Bank, Union Bank of India and Canara Bank have discontinued the special home loan scheme.
Like SBI, these banks also offered step-up fixed rate loans where rates varied from one bank to another. Most banks offered 8% or 8.25% for the first year and raised the fixed rate to 8.25% or 8.5% for the second year.
Some banks had fixed rate scheme till the third year while others had the fixed rate scheme till fourth year. Thereafter, the rates would be linked to banks PLR These banks are now offering floating rate loans linked to their PLR.
