New Delhi: Banking on excess liquidity, leading private sector lenders namely ICICI Bank and Axis Bank have launched 'cashback' home loan schemes for its borrowers.
After Axis Bank, ICICI Bank, the largest private lender in the country, on Thursday unveiled a 1 percent cash back scheme for its home loan borrowers on their monthly installment payment. The scheme offers 1 percent cashback on every EMI.
The product, which comes amid a long period of excess liquidity, sluggishness in overall credit pick-up and fears of a slowdown in the residential property market, can help a borrower get up to 11 percent of the principal amount in a 30-year loan period.
The bank has launched two more schemes -- a 20 percent cash back for spends by its debit and credit card customers up to a maximum of Rs 10,000, and a 20 percent step-up repayment -- which can be availed of alongside, executive director Anup Bagchi said. However, the bank said the offer is only for new home loan borrowers. The bank also did not say how much liquidity it is sitting on.
The cashback product comes weeks after its smaller rival Axis Bank also launched an offering promising to waive EMIs if the borrower does not default on EMIs in an effort to improvise borrower behaviour.
With both these offers, the focus is on ensuring that the borrower pays regularly through the loan contract period and there is no pre-payment.
He said the effective rate of interest for a borrower availing of an affordable housing product is 4.62 per cent after factoring in the Rs 2.5 lakh direct cash subsidy from the government and also the benefit deriving from the income tax exemptions.
The bank will be making the "sacrifice" when it gives the cashback, Bagchi said, adding that in the process, it helps a potential home buyer make faster decisions and get the home.
Prepayments and an ensuing reduction in the duration of the loan can deprive a bank of interest income for the duration of the loan.
Bagchi, however, did not share the prepayment rate which the bank is witnessing at present.
He said the cashback product "incentivises the customers to stay on for a longer period of time which is healthy from a customer as well as bank perspective and generally from an ecosystem perspective."
The minimum loan tenure to avail of the product has been fixed at 15-30 years and a customer has the option either to adjust the cashback against principal outstanding or, get it as a direct credit in her bank account.
The cashback will start accruing from the first EMI itself, but will first get credited to the customer after completion of 36th EMI and subsequently on a yearly basis.
It is applicable for other mortgage products like a loan against property, lease-rental discounting and top-ups on existing mortgage loans as well, the bank said.
(With PTI Inputs)