Monday, 1 August 2016

Banks to launch new loan schemes to grab pay commission arrears

Banks to launch new loan schemes to grab pay commission arrears

Banks-to-launch-schemes-to-grab-arrears

New Delhi: State Bank of India, the country’s largest lender, and its rivals are set to launch programmes aimed at encouraging central government employees in line for fatter 7th pay commission arrears to borrow and spend on consumer goods, cars and homes.

The government announced its employees would get the higher salaries from August along with arrears of the first seven months under the Finance ministry Office Memorandum No.1-5/2016-IC issued on Friday. The pay commission award is due from January 1.

Punjab National is also firming up plans to tap salary increases to the tune of a total Rs 70,000 crore through this financial year thanks to the award of the Seventh Central Pay Commission.

State-owned SBI will raise the age bar on loan repayments by five years in the two schemes it’s planning. It will also offer lower interest rates and the flexibility of paying higher installments in the first few years.

“We will launch SBI Privilege to suit the needs of the borrowers who will be benefiting from the pay commission,” SBI managing director Rajnish Kumar told The Economic Times. “This new scheme will allow home loan borrowers to service loans till the age of 75 from the existing age of 70 years besides a five basis point reduction in interest rates if they repay through check-off facility (or payments deducted directly from the salary).” A basis point is 0.01 percentage point.

Another progamme, SBI Shaurya, is aimed at defence personnel, who are also in line for pay and pension increases.

“We expect that the major demand will be from personal loans and car loans,” a Bank of Baroda executive told The Economic Times. “We will be soon be coming out with interesting offers on these two product lines.”

After the sixth pay commission award in 2008, the sales of two wheelers and passenger cars rose 25%. Analysts expect a similar bump, though not as sharp, this time around.

The increase in salary this time is an average 15% compared with 40% last time. Plus, last time the arrears were for two years, resulting in a bigger surge.

Inputs with ET

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