SBI Home Equity scheme

State Bank of India (SBI) has taken competition head on by launching a personal loan scheme against property loans at interest rates lower than that of some of its private peers.

The scheme, aimed at existing home loan borrowers and linked to the price of property, is offering personal loan at 11.25% to existing home loan customers.

The offer is similar to the top-up scheme of other players such as ICICI Bank and home loan provider HDFC, which have pegged their loans at 12.25% and 12.50%, respectively. The new product, called 'SBI Home Equity scheme', gains relevance in the context of the rise in property prices over the last few years.

The personal loan entitlement under the scheme is linked to the value the property for which the borrower is already paying EMI. The lender will give a maximum 75% of the value of the property after deducting the outstanding amount of the loan.

For instance, if the property is valued at Rs 1 crore and the borrower has an outstanding principal loan of Rs 10 lakh, the bank will deduct a margin of Rs 25 lakh and the outstanding principal of Rs 10 lakh, making the borrower eligible for a loan of Rs 65 lakh, provided his annual income supports it.

"It is too early to gauge how successful the scheme is since it was launched less than a month back," said an official from SBI on condition of anonymity. The interest rate of 11.25% charged by SBI is benchmarked to the bank's base rate of 10%.

Similarly, rates offered by other players like ICICI Bank and HDFC for top-up loans are benchmarked to their base rates or prime lending rates. The scheme, which links home loans to personal loans will attract home loan customers of other banks, say industry experts.

Customers may shift their loan account to SBI, particularly in the context of the Reserve Bank of India banning banks from charging any prepayment penalty.

SBI is also offering overdraft facility on the new scheme at 11.50%.

SBI has emerged as one of the largest players in the home loan market with a portfolio of more than Rs 1 lakh crore.