Tamil Nadu - Chennai

Concern at delay in announcing home loan interest rate cut

CHENNAI: With interest rates of home loans playing a key role in the sustenance of housing market, a reduction in the rate recently by up to 75 basis points by some public sector banks has brought cheers to both customers and builders. However, the time taken by other banks and housing finance companies, particularly in the private sector, to effect a downward revision in the rate is equally a cause for concern to many.

Both existing and prospective home loan seekers are puzzled about the reason for these banks not reducing the rate of interest. The interest rate on home loan levied by ICICI Bank is 13 per cent floating and 16.5 fixed. Sources in the bank attributed the relatively high interest rate of home loan to the prevailing market situation. A spokesperson said: “We continue to watch the market situation on a dynamic basis and will take a decision accordingly.”

The bank did not seem to have concerns about the possible reduction of the number of customers seeking home loan as officials felt the decision of a customer was based on the superior service of the bank.

Housing Development Finance Corporation (HDFC) has also not reduced the rate of interest of home loan.

“Our interest rates are a function of our cost of funds. We have always passed on the benefit of lower cost of funds to our customers and we will continue to do the same,” said a spokesperson of HDFC.

HDFC recently raised Rs.8 billion by selling bonds through ICICI Securities Primary Dealership. The mortgage lender sold 10-year bonds at 11.95 per cent. The coupon will be payable annually.

“Our cost of funds has not come down. When the cost of funds comes down, we will surely reduce the rate of interest,” the spokesperson added.

“The liquidity problem is not severe. The interest rate for home loan is a function of our PLR and the fund cost,” said R.R.Nair, CEO of LIC Housing Finance.

“We pick funds from the market and recycle it. No bank is prepared to offer any funds below 12.5 per cent. We will be reducing the interest rate as soon as the fund cost comes down,” he added.

“When the interest rate had to be increased, we increased it by 125 basis points, but in three instalments,” Mr. Nair said, adding that the bank had not transferred the entire burden to the customers as it had borne the higher cost of funds internally.

LIC Housing Finance has witnessed a growth in disbursals and approvals of home loan. This is due to our wide network, according to Mr.Nair.

“We have recently raised funds at 12 plus but are offering at 11.5 per cent,” said Mr.Nair.

“Housing loans of LIC Housing Finance does not have any hidden cost. This provides comfort to the customer. We also operate in the market with a genuine end user segment. This explains our growth in number of disbursals by 15 per cent and in amount by 33 per cent,” said Mr.Nair.

He does not see any inclination of the market to reduce the prevailing rate of offer in the near future. The rate ranges from 12.5 to 14 percent.

Sources among builders say that in such a situation the wait-and-watch stance of prospective customers would prolong. For existing customers, it would mean more phone calls to enquire when the banks and HFCs are planning to reduce the rate.

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