New Delhi: The festival discounts, on home loans and other retail loans, which were earlier supposed to expire on 31st December 2007, have been extended by both the State Bank of India (SBI) and the ICICI Bank, two of the largest lenders in India.
The unprecedented rise in interest rates, which occurred during the last year was a big reason for a decline in credit off-take in various loan segments. With borrowers fleeing the market and banks missing their targets by huge margins, they resorted to offering discounts on different types of loans especially the home loans. All the major banks from private and public sector offered discounts. While most of the banks offered the discounts to new customers only, Axis Bank moved a step further and extended the discounts on interest rates to its existing customers also.
State Bank of India was the show stealer when it announced a reduction in interest rates of 50 to 200 basis points from October 8, 2007. These discounted interest rates were coupled with a reduction in processing fees and hassle free approval. SBI's offer was valid till December 31, while other banks committed for such discounts only till October 31, when the monetary policy review by Reserve Bank of India (RBI) was expected.
However, contrary to popular expectations of any rate cut, RBI kept the rates at the same level and increased the Cash Reserve Ratio (CRR) by 50 basis points and most of the banks were not able to continue their discounted offers. The credit off-take during the festive season didn't rise significantly as expected and ICICI Bank, the biggest competitor of SBI decided to match the latter's offer and extended its festival discounts beyond 31st October.
With this extension of the festive discounts to January 31, these banking giants are expecting to lure in more borrowers and inch closer to their targets.