A bellwether signal? SBI hikes home loan rates by 25 basis points

Time of India

2 days ago

Mumbai: In a move that could signal a shift toward higher interest rates in the home loan market, India's largest mortgage lender,
State Bank of India
(SBI), has increased home loan rates by 25 basis points for new borrowers.
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The hike primarily affects applicants with lower
credit
scores, as the bank has raised the upper band of its loan rates.
Union Bank of India
has also increased its rates, and other public sector lenders may follow suit.
During the last fortnight of July, SBI's mortgage rates ranged from 7.5% to 8.45%. After the revision, new borrowers will pay between 7.5% and 8.70%.
Union Bank of India
has raised its rate to 7.45%, up from 7.35% in late July.
Both banks did not respond to emailed queries seeking an explanation for the rate hike.
In comparison, private lenders such as
HDFC Bank
,
ICICI Bank
, and
Axis Bank
currently offer home loans with starting rates of 7.90%, 8%, and 8.35%, respectively.
"Yes, SBI has tweaked the rates based on CIBIL scores and the External Benchmark Lending Rate (EBLR). This is a low-yielding product for us, so we've decided to increase margins on new loans for borrowers with low credit scores. This change applies only to new customers and will not impact the ₹8 lakh crore of outstanding loans," said a person familiar with the matter.
Home loans form the largest portion of SBI's retail lending portfolio. Private banks have been critical of the aggressive pricing strategy adopted by public sector peers..
HDFC Bank reported a year-on-year growth of nearly 7% in its home loan portfolio for the first quarter of the current financial year, though growth remained flat sequentially. Bank executives attributed the slowdown to "irrational pricing" by competitors, arguing that pursuing growth at the expense of profitability was unviable.
"We continue to see very low rates. In many top cities, mortgage rates are being advertised at 7.2% to 7.3%, levels not seen in recent years," said Srinivasan Vaidyanathan, Chief Financial Officer at HDFC Bank, during the bank's post-earnings call. "We want the right kind of customer for a broad-based relationship, so we've been selective."
Pricing pressure has intensified following a 100 basis point cut in the repo rate by the Reserve Bank of India, bringing it down to 5.5%.
ICICI Bank posted a 10.3% increase in its mortgage portfolio for the quarter, with home loans
accounting
for two-thirds of the growth. However, this was slower than the 14.2% expansion recorded a year earlier, reflecting softer demand and heightened competition.
Mixed Data
Axis Bank, meanwhile, reported a year-on-year decline in home loan volumes, a segment it has struggled to grow for several quarters.
For FY25, ICICI Bank reported 11% growth in its home loan book, ahead of private sector peers HDFC Bank (8%) and Axis Bank (6%). Public sector banks outperformed, with SBI growing its home loan portfolio by 14%, and
Bank of Baroda
and
Punjab National Bank
posting growth of 18% each.
The rate hikes by SBI and Union Bank of India may indicate a strategic shift away from low-margin retail loans, with a renewed focus on more profitable lending segments.
According to RBI data, home loans grew by 9.6% in the year ending June 2025-a sharp slowdown from the 36.3% growth recorded the previous year.
These increases come at a time when the repo rate is falling and banks are facing pressure on net interest margins. Many public sector banks had priced home loans aggressively, leveraging their wide customer base and reach. Experts had warned that such low-yielding products, while expanding loan books, were unsustainable as they did not improve profitability.
"The industry is feeling the pinch amid a downward interest rate cycle and mounting pressure on net interest margins. Raising interest rates on select products can help banks generate additional income and improve returns," said Asutosh Mishra, lead BFSI analyst at Ashika Stock Broking.
Over the past four years, government-owned banks have steadily gained market share. Data from credit bureau CRIF Highmark shows that the share of new home loans by value for public sector banks rose to 43% in FY25 from 34% in FY22. Over the same period, the share for private banks fell to 29.8% from 42.6%.