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In an attempt to shore up credit demand, banks are rolling out festival schemes on home loans ahead of Diwali. Deals include teaser rates for initial years, with some lenders giving an option to shift to either fixed or floating rates in subsequent years.Lenders like Canara Bank, Bank of Maharashtra (BoM) and Dena Bank are offering fixed-rate loans for the first five years, and subsequently, linking the loans to their prime lending rates. While others like Bank of India are offering fixed-rate loans for the first two years. India’s largest bank SBI is offering fixed rates for the first three years. The competition to gain market share has resulted in a small price war.On Thursday, Development Bank of Credit introduced a fixed rate of 7.95% for the first year — the lowest, at least, for the first year. From the second year onwards, the home rates will be linked to floating rate loans. BoM and Dena Bank offer a fixed rate of 8% for loans up to Rs 30 lakh in the first two years, while Canara Bank offers 8% in the first year for Rs 30 lakh and SBI offers 8% for the first five years for loans up to Rs 5 lakh.

Most banks have also waived off the processing fee during the festival season. Traditionally, home sales peak ahead of the academic year in June, with families looking out for new homes during summer vacations. However, this year’s summer sales were flat due to uncertainties. Now, builders and lenders are making a fresh pitch to push sales during Diwali through limited period offers. Interestingly, the offers are coming largely from PSU banks. HDFC, ICICI Bank and LIC Housing have not yet announced any festival offers, but announcements closer to Diwali are not ruled out either. The three lenders charge interest at 8.75% on their lower-end loans.Bank officials are hopeful that the retail credit growth will contribute substantially for the credit demand in the third quarter of this fiscal year. Most offers are till December 31, 2009. “The demand for home loans is better than the past years. But at the same time, we are seeing many applications which are transfer cases (from another bank),” said AC Mahajan, chairman and managing director of Canara Bank.Banks like SBI, Canara Bank, BoM, BoI and Dena Bank are offering fixed-rate loans for the initial years. However, banks like BoB and PNB are offering fixed rates, besides giving floating rate loans.The demand for auto loans continues to be higher than home loans. But at the same time, we are witnessing better demand in the past few weeks in small- and mid-sized towns,” pointed out M Narandran, ED of BoI.