Banks offer semi-fixed loans to deploy surplus liquidity
Banks are deploying surplus liquidity through new mortgage products. HSBC and Kotak Mahindra Bank lead with semi-fixed home loan options. These products offer fixed rates for a period before switching. This strategy aims to protect lending margins amid interest rate uncertainty. Surplus funds are also being considered for government securities.
Mumbai - Surplus liquidity has led banks to explore new avenues to deploy funds and ensure assured returns, protecting their margins. HSBC and Kotak Mahindra Bank have taken the lead in this area, modifying mortgage products and potentially introducing similar loan plans. The surge in liquidity can be attributed to a record mobilization of funds through the RBI's FCNR(B) scheme, which saw $136.4 billion in forex inflows by August 31, including $127.2 billion through FCNR(B) deposits.
HSBC is offering semi-fixed home loans, with its three-year fixed option starting at 7.50% and a five-year fixed option at 8.25%. After the fixed rate period, the loan switches to the prevailing floating rate. Similarly, Kotak Bank is providing hybrid home loans for up to 65 months, maintaining a fixed interest rate of 7.60% throughout the period. After the 65-month fixed rate, the loan will be linked to the prevailing rate, ensuring EMI stability even if the Repo Rate fluctuates.
Traditionally, excess funds were invested in government securities. However, banks are now focusing on deploying part of the surplus into these assets while locking in a spread, as opposed to betting on the direction of interest rates. A bank executive explained that the attraction lies in putting surplus money to work, securing a predictable return while avoiding marked-to-market risks associated with government securities when yields change.
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