Banks, HFCs yet no plans for cut in home loans rate

Housing finance players, including ICICI Bank, HDFC and State Bank of India, are in no mood to cut lending rates on home loans immediately on account of rising inflation and borrowing costs.

Bankers say although the Reserve Bank of India (RBI) has decided to reduce the risk weight for home loans between Rs 20 lakh and Rs 30 lakh to 50 per cent, the possible benefit for banks appears to be more than counterbalance by 75 basis point rise in cash reserve ratio (CRR) and increase in the cost of resources, which is associated to profits on government bonds and competition.

CRR is the share of deposits that has to be kept with RBI without getting any interest on them. Higher the CRR, lesser is the sum available with banks to organize for lending operations.

On Wednesday, a public sector, Union Bank of India announced a 25-100 basis point reduction in interest rate on home loans up to Rs 30 lakh.

On the other hand a senior State Bank of India official dealing with retail assets said with high inflation, rising cost of funds and tightening of CRR, there is very little room to manipulate or experiment with home loan rates.

In fact last week, SBI Chairman O P Bhatt had pointed out that interest rates both on lending and deposit side are expected to be stable in next the three-five months.

Agreeing with the views expressed by public sector bank executives, senior Housing Development Finance (HDFC) official said, "The relaxation in risk weight could some benefit to us. But, we depend on banks to mobilize resources through various financial instruments and loans and they are charging higher rates. So there is no scope for easing the rates at least in the short term."

Tipping-of at stable rate regime for now, ICICI Bank CEO K V Kamath said in Delhi that looking at the current scenario there are no indications from the market to signal a change in interest rates.

Expressing his views a senior IDBI Bank official said it (Union Bank decision) came as a surprise and his bank is not revising the interest rates on home loans for now. A hike in CRR leaves fewer resources with the bank, indirectly increasing the cost of funds.

An official from Bank of India said, "We reviewed the implications of RBI policy decision to reduce the risk weight for loans between Rs 20 lakh and Rs 30 lakh to 50 per cent. It is not going to make much difference in the form of benefit to be passed on to borrowers."

If we look at the average size of home loans contracted by public sector banks is between Rs 7.5 lakh and Rs 10 lakh. This is well below the old ceiling of Rs 20 lakh (for 50 per cent risk weight). The official added therefore, the relaxation is not expected to make a major difference in the demand pattern.