Home loan rates are heading towards south. On Tuesday the Reserve Bank of India’s (RBI’s) credit policy and it is expected to cut the rates at which it lends money to banks, which in turn will pass on the benefit to those who have taken home or personal loans from them.
Analysts are of view the banks will be cutting loan rates even if the RBI does not cut its rates immediately but simply hints at it in the near future.
While industry watchers expect the RBI to take a cue from the US Federal Reserve, which had cut rates by 0.75 per cent to keep at bay the slump. They are expecting the RBI to shave 0.25 per cent off its rates. “The RBI is also expected to keep steady the cash reserve ratio — the percentage of deposits banks are expected to keep in reserve — at 7.5 per cent,” said A. Prasanna of ICICI Securities.
At the moment banks are flushing with cash, which is another reason why analysts are certain about the fall on loan rates. According to RBI data so far this fiscal credit growth was at 22.2 per cent, compared to 31.9 per cent last year, while deposit growth rose to 23 per cent from 21.5 per cent.
Sachchidanand Shukla, economist at Enam Securities, said: “The other indicator is that leading lenders like ICICI and HDFC have extended their Diwali offers on loans up to January-end. They could not cut them earlier because of the fear of a cash reserve ratio hike.”
So, what can stop the RBI from cutting rates? Mainly, it is the fear that it can be interpreted as a departure from the discipline of a tight monetary policy over the last four years, which has served the economy well.
“So, even if the RBI does not cut rates right away, the trend points to cuts soon enough,” said D.K. Joshi, director and principal economist at industry rating agency CRISIL.
Wednesday, January 30, 2008
Thursday, January 24, 2008
Home, auto loan rate to cut down with cut in interest rate
Alarming state of the US economic slowdown on Tuesday forced a cut of 0.75 in the interest rate, there is growing conjecture that the Reserve Bank of India (RBI) will also follow the same line.
If that happens, over the next two quarters one can see a cut in retail loan rates, including home loans, by 0.25-0.5 per cent. Floating rate home loans of the three major lenders HDFC, SBI and ICICI Bank are between 10.25 per cent and 10.5 per cent.
On Tuesday RBI is scheduled to announce its quarterly monetary policy. It would be under pressure as the Federal Reserve (the Fed) rate cut has broadened the differential between US and Indian rates to 4.25 per cent. (The Indian repo rate, the rate at which the RBI lends to banks, is 7.75 per cent, while the US Fed’s overnight rate is 3.5 per cent).
On seeing this kind of differential, it will make sense for foreign players to borrow in the US and lend in India to make money on the spread. The RBI would not want that, for the arrival of an overflow of dollars would make the rupee stronger, reducing our ability to export.
If the RBI cuts rates, then the retail rates will get cheaper. On January 4, finance minister Palaniappan Chidambaram had asked banks to lower lending rates by 50 basis points (100 basis points make 1 per cent). Although bankers feel there is scope for retail loans to move southwards.
“Home loans are expected to come down this year by at least 0.5 per cent as we expect the central bank to slash key interest rates by 0.25 per cent during the monetary policy review,” said Harpreet Singh, business director for wealth management and distribution of loans with Centurion Bank of Punjab (CBoP).
OP Bhatt, managing director of State Bank of India, said rates could be cut, but did not want to commit himself to a specific rate. “To cut rates would be the intention, but there is no one-to-one correlation between RBI rate cuts and consumer rates. I can’t say how much rates will come down,” Bhatt said, speaking on the sidelines of a conference in Mumbai.
Unlike CBoP, Bhatt feelt that the RBI will hold its benchmark interest rates stable during the monetary policy. “It may not go up. It may remain the same. A rate cut in the US does not necessarily mean rates should be cut in India. Factors are different,” said Bhatt.
In the past 18 months the central bank has raised key interest rates six times. Since December, 2006 it has also raised banks’ cash reserve ratio (CRR) by 2.5 per cent to 7.5 per cent in order to suck out excess liquidity from the system and keep inflation within limits.
Rajiv Sabharwal, head of retail assets and rural finance at ICICI Bank, felt that there would not be any change in interest rates on retail loans as a whole during the current quarter, but a lot would depend on what the central bank would do.
“While we do not see a change in interest rates on loans for this quarter, it all depends on the regulator and the cost of funds,” Sabharwal added.
Discussing about auto loan rates specifically, CBoP’s Singh feels they will slide by good 50-100 basis points this year.
“While demand for car loans has been satisfactory, demand for two-wheeler loans is almost nil owing to high interest rates. If there is a decline in interest rates, we could expect some softening in auto loan rates this year. This will help a pick up in demand,” said Singh.
If that happens, over the next two quarters one can see a cut in retail loan rates, including home loans, by 0.25-0.5 per cent. Floating rate home loans of the three major lenders HDFC, SBI and ICICI Bank are between 10.25 per cent and 10.5 per cent.
On Tuesday RBI is scheduled to announce its quarterly monetary policy. It would be under pressure as the Federal Reserve (the Fed) rate cut has broadened the differential between US and Indian rates to 4.25 per cent. (The Indian repo rate, the rate at which the RBI lends to banks, is 7.75 per cent, while the US Fed’s overnight rate is 3.5 per cent).
On seeing this kind of differential, it will make sense for foreign players to borrow in the US and lend in India to make money on the spread. The RBI would not want that, for the arrival of an overflow of dollars would make the rupee stronger, reducing our ability to export.
If the RBI cuts rates, then the retail rates will get cheaper. On January 4, finance minister Palaniappan Chidambaram had asked banks to lower lending rates by 50 basis points (100 basis points make 1 per cent). Although bankers feel there is scope for retail loans to move southwards.
“Home loans are expected to come down this year by at least 0.5 per cent as we expect the central bank to slash key interest rates by 0.25 per cent during the monetary policy review,” said Harpreet Singh, business director for wealth management and distribution of loans with Centurion Bank of Punjab (CBoP).
OP Bhatt, managing director of State Bank of India, said rates could be cut, but did not want to commit himself to a specific rate. “To cut rates would be the intention, but there is no one-to-one correlation between RBI rate cuts and consumer rates. I can’t say how much rates will come down,” Bhatt said, speaking on the sidelines of a conference in Mumbai.
Unlike CBoP, Bhatt feelt that the RBI will hold its benchmark interest rates stable during the monetary policy. “It may not go up. It may remain the same. A rate cut in the US does not necessarily mean rates should be cut in India. Factors are different,” said Bhatt.
In the past 18 months the central bank has raised key interest rates six times. Since December, 2006 it has also raised banks’ cash reserve ratio (CRR) by 2.5 per cent to 7.5 per cent in order to suck out excess liquidity from the system and keep inflation within limits.
Rajiv Sabharwal, head of retail assets and rural finance at ICICI Bank, felt that there would not be any change in interest rates on retail loans as a whole during the current quarter, but a lot would depend on what the central bank would do.
“While we do not see a change in interest rates on loans for this quarter, it all depends on the regulator and the cost of funds,” Sabharwal added.
Discussing about auto loan rates specifically, CBoP’s Singh feels they will slide by good 50-100 basis points this year.
“While demand for car loans has been satisfactory, demand for two-wheeler loans is almost nil owing to high interest rates. If there is a decline in interest rates, we could expect some softening in auto loan rates this year. This will help a pick up in demand,” said Singh.
Wednesday, January 23, 2008
Farmers alleged Parmatma Cooperative bank for cheating and harassment
Farmers come together to fight against cheating and harassment. In Nagpur bench of Bombay high court, 66 farmers from Ramtek and Mouda together have filed a petition against Parmatma Cooperative Bank for alleged cheating and harassment.
The single-judge bench of Justice Bhushan Dharmadhikari, directed registrar to verify charges regarding excess recovery of loan from the petitioners, and issued a show cause notices to principal secretary of state cooperatives department and Parmatma Cooperative Bank chief executive officer. The notices have also been served to bank’s managers of Ramtek and Mouda branches and regional director of Reserve Bank of India.
According to the petitioners, they had secured loans for the purpose of farming and house repairs from the bank. They alleged as most of them are illiterate the bank has cheated them by recovering excess amount.
One of the petitioners in his petition said that he had applied for Rs 30,000 loan in 1999, however the bank gave him only Rs 22,500. In July, 2007, the bank told him to pay Rs 80,518 in form of repayment. Other farmers also claimed that they have become the victim’s to the bank’s illegal practice in the same way.
The petitioners said that despite appealing before various offices including state cooperative department and police, their appeals were ignored. They have asked for high level probe into the matter and action against the guilty.
The single-judge bench of Justice Bhushan Dharmadhikari, directed registrar to verify charges regarding excess recovery of loan from the petitioners, and issued a show cause notices to principal secretary of state cooperatives department and Parmatma Cooperative Bank chief executive officer. The notices have also been served to bank’s managers of Ramtek and Mouda branches and regional director of Reserve Bank of India.
According to the petitioners, they had secured loans for the purpose of farming and house repairs from the bank. They alleged as most of them are illiterate the bank has cheated them by recovering excess amount.
One of the petitioners in his petition said that he had applied for Rs 30,000 loan in 1999, however the bank gave him only Rs 22,500. In July, 2007, the bank told him to pay Rs 80,518 in form of repayment. Other farmers also claimed that they have become the victim’s to the bank’s illegal practice in the same way.
The petitioners said that despite appealing before various offices including state cooperative department and police, their appeals were ignored. They have asked for high level probe into the matter and action against the guilty.
Tuesday, January 22, 2008
Rise in home loan rates slowdown in housing loan disbursal
In the current fiscal year downfall in housing sector is expected between 17 and 20 per cent. There has been rise in the home loan rates which had a sever impact on the housing sector, its growth has fallen to 26.6 per cent in 2006-07 from 29.1 per cent in 2005-06
A study on ‘Impact of rising home loan rates’ was done by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). In its study it pointed out that the real estate market has already seen a drop of 60 per cent in sales.
Its impact could further worsen if reversal in rising interest rates for housing is not addressed urgently.
Before the fiscal year 2005-06, the former three fiscals saw a record year-on-year rise in the housing sector of 49.5 per cent, 73.9 per cent and 48.6 per cent respectively. As no suitable measures have been taken to control the interest rates on housing segment have been affected, by nearly 60 per cent therefore many of home aspirants are staying away from the pre-launch sales.
“The builders usually rely on the advance amount received by way of pre-launch bookings. The money is collected well before starting construction work but loans are becoming costlier as the buyers are not willing to expose themselves to an extended time period. Instead, they wait for the completion of construction. Several developers have, therefore, deferred the launch of their residential projects,” says the study. The study conducted referring to differential between EMIs, says the approximate change in EMI for housing loan of Rs.10 lakh works out to be Rs.3,250 and puts an additional burden of Rs.39,000 per annum on end-users.
The study also points out that speculators play a significant positive and negative role in pushing the prices of property by more than 20 per cent and rise in interest rates helps speculators to dictate the prices.
According to Chamber’s findings, the recent boom in property market joined with low interest rate regime had worked as a breeding ground for speculators. So much so that speculators included a whole range of players such as small property brokers, big or small retail investors apart from big players. The speculators generally buy units in bulk by paying margin money thus creating an artificial shortage, which increases pressure on the prices.
With the funds becoming dearer, there has been a major slowdown in speculated purchasing activities by investors for at least short term. The risk rewarded ratio of the speculators has been thrown out of gear. For the time being the risk has magnified as the buyers are adopting a “wait and watch policy”, with the expectations of correction doing rounds, concludes the Chamber’s assessment. In the last couple of years the real estate sector market size currently estimated at $15 billion which has grown between 35 and 38 per cent in the last couple of years as a result of which huge investments have poured into it.
It is expected that 2008 onwards, the real estate sector is likely to grow between 40-45 per cent, but by 2010 metros and large cities will see a slow pace. The study stated as a result of this, the reality sector in tier II and tier III and even tier IV cities will make major expansion drive for providing housing units to the neglected lot of society.
A study on ‘Impact of rising home loan rates’ was done by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). In its study it pointed out that the real estate market has already seen a drop of 60 per cent in sales.
Its impact could further worsen if reversal in rising interest rates for housing is not addressed urgently.
Before the fiscal year 2005-06, the former three fiscals saw a record year-on-year rise in the housing sector of 49.5 per cent, 73.9 per cent and 48.6 per cent respectively. As no suitable measures have been taken to control the interest rates on housing segment have been affected, by nearly 60 per cent therefore many of home aspirants are staying away from the pre-launch sales.
“The builders usually rely on the advance amount received by way of pre-launch bookings. The money is collected well before starting construction work but loans are becoming costlier as the buyers are not willing to expose themselves to an extended time period. Instead, they wait for the completion of construction. Several developers have, therefore, deferred the launch of their residential projects,” says the study. The study conducted referring to differential between EMIs, says the approximate change in EMI for housing loan of Rs.10 lakh works out to be Rs.3,250 and puts an additional burden of Rs.39,000 per annum on end-users.
The study also points out that speculators play a significant positive and negative role in pushing the prices of property by more than 20 per cent and rise in interest rates helps speculators to dictate the prices.
According to Chamber’s findings, the recent boom in property market joined with low interest rate regime had worked as a breeding ground for speculators. So much so that speculators included a whole range of players such as small property brokers, big or small retail investors apart from big players. The speculators generally buy units in bulk by paying margin money thus creating an artificial shortage, which increases pressure on the prices.
With the funds becoming dearer, there has been a major slowdown in speculated purchasing activities by investors for at least short term. The risk rewarded ratio of the speculators has been thrown out of gear. For the time being the risk has magnified as the buyers are adopting a “wait and watch policy”, with the expectations of correction doing rounds, concludes the Chamber’s assessment. In the last couple of years the real estate sector market size currently estimated at $15 billion which has grown between 35 and 38 per cent in the last couple of years as a result of which huge investments have poured into it.
It is expected that 2008 onwards, the real estate sector is likely to grow between 40-45 per cent, but by 2010 metros and large cities will see a slow pace. The study stated as a result of this, the reality sector in tier II and tier III and even tier IV cities will make major expansion drive for providing housing units to the neglected lot of society.
Wednesday, January 16, 2008
Strong quarterly profits set to be posted by Indian banks
Analysts are a view that Indian banks are expected to show a healthy rise in their quarterly net profit on higher earnings from loans due to a rise in interest rates and treasury gains as a result of a gain in bond prices.
For Oct-Dec a Reuters poll of analysts forecasted an average net profit rise of 23 percent for small and mid-cap banks. Private sector banks have been posting the highest rise.
"With the lending rates mostly remaining firm, the yields on advances should provide some fillip to the net interest margins on a sequential basis,'' Brokerage Sharekhan said in a report.
In 2007 banks raised interest rates by 200-250 basis points, after the Reserve Bank of India had raised the rates five times since June 2006 and tightened banks' reserve requirements through the year, limiting the availability of the funds for loans.
According to the poll forecast there is a rise of 82.6 percent in net profit for the quarter for Yes Bank and 60.07 percent rise for Centurion Bank of Punjab.
There was a fall in profit in some state-run banks. Allahabad Bank, which was expected to announce results on Wednesday, reported a 9.8 percent fall in profit, whereas there was a downfall in the profits of UCO Bank and Syndicate Bank also.
In early September the rules for foreign borrowings were tightened. The Indian banks are expecting to gain from this, as this will force firms to borrow from local lenders, but banks also feared about growing defaults after the central bank raised interest rates.
Analysts said in this quarter, they will be keeping a close watch on the provisioning by banks towards bad assets as it would determine the asset quality of banks.
"If the provisioning keeps going up, then there will be a concern on the quality of assets, especially the excess capacity that was created over the last few quarters," an analyst with a foreign brokerage said.
Analysts said the cost of funds diversified between 5 and 8 percent depending on the profile of deposits. They said the cost for banks with higher share of retail deposits will be lower.
According to analysts the non-interest income, i.e. mainly gains from treasury operations, is expected to go up as bond and equity markets have performed well in the quarter.
During the quarter there was a fall in 10-year bond yield from 7.90 to 7.79 percent, while the benchmark stock index rose 17 percent to 20,286.99.
Fee-based income will also be a major factor, especially for private banks, said an analyst with a Mumbai-based brokerage.
An analyst with a domestic brokerage said the asset quality would be good and the overall economic growth will support recovery from written-off assets.
For Oct-Dec a Reuters poll of analysts forecasted an average net profit rise of 23 percent for small and mid-cap banks. Private sector banks have been posting the highest rise.
"With the lending rates mostly remaining firm, the yields on advances should provide some fillip to the net interest margins on a sequential basis,'' Brokerage Sharekhan said in a report.
In 2007 banks raised interest rates by 200-250 basis points, after the Reserve Bank of India had raised the rates five times since June 2006 and tightened banks' reserve requirements through the year, limiting the availability of the funds for loans.
According to the poll forecast there is a rise of 82.6 percent in net profit for the quarter for Yes Bank and 60.07 percent rise for Centurion Bank of Punjab.
There was a fall in profit in some state-run banks. Allahabad Bank, which was expected to announce results on Wednesday, reported a 9.8 percent fall in profit, whereas there was a downfall in the profits of UCO Bank and Syndicate Bank also.
In early September the rules for foreign borrowings were tightened. The Indian banks are expecting to gain from this, as this will force firms to borrow from local lenders, but banks also feared about growing defaults after the central bank raised interest rates.
Analysts said in this quarter, they will be keeping a close watch on the provisioning by banks towards bad assets as it would determine the asset quality of banks.
"If the provisioning keeps going up, then there will be a concern on the quality of assets, especially the excess capacity that was created over the last few quarters," an analyst with a foreign brokerage said.
Analysts said the cost of funds diversified between 5 and 8 percent depending on the profile of deposits. They said the cost for banks with higher share of retail deposits will be lower.
According to analysts the non-interest income, i.e. mainly gains from treasury operations, is expected to go up as bond and equity markets have performed well in the quarter.
During the quarter there was a fall in 10-year bond yield from 7.90 to 7.79 percent, while the benchmark stock index rose 17 percent to 20,286.99.
Fee-based income will also be a major factor, especially for private banks, said an analyst with a Mumbai-based brokerage.
An analyst with a domestic brokerage said the asset quality would be good and the overall economic growth will support recovery from written-off assets.
Subscribe to:
Posts (Atom)