NHB says: “There is no real rush on the part of HFCs to raise rates”

After the hike in key rates by the Reserve Bank of India (RBI) the banks are raising their lending rates. The banks have raised their BPLR which will have impact on home, car and personal loans.

But National Housing Bank (NHB), regulator for HFCs, has said that they will not follow the banks in raising home loan rates immediately.

RV Verma, executive director of NHB, told Financial Chronicle, “There is no real rush on the part of HFCs to raise rates. It will depend on their cost of funds.”

Verma said HFCs will wait and watch banks action on base rate before thinking of raising lending rates. He said, “Over 50 per cent of HFC funding comes from banks. If banks raise their base rates when they conduct their next round of review, the cost of funds of HFCs will be impacted. That will have a bearing on the decision of most HFCs.”

According to rating agency ICRA report, at the end of December 2009, around 59% of HFCs loans were taken by commercial banks.

Verma says, bank may have to raise their base rates in the next review as they are raising their deposit rates, due to which their cost of funds will be affected.

Most of the commercial banks including the State Bank of India, ICICI Bank, Punjab National Bank, Union Bank and IDBI Bank — have hiked their prime lending rates. The EMIs of borrowers whose loans are linked to floating rates are adjusted accordingly as the rates are linked to PLR.

From July 1, banks have switched to base rate system in which they cannot lend below this rate to the new borrowers. The existing borrowers have option to switch to the new rate system without paying any charges or can continue to the earlier benchmark prime lending rate (the rate at which they give loans to their best rated borrowers).

RR Nair, director and chief executive officer of LIC Housing Finance, said the rates for existing borrowers might be reviewed at the beginning of the next quarter. Nair told Financial Chronicle, “We do not adopt the policy of changing interest rates depending on market movement. For our existing customers, we review our rates once at the beginning of each quarter.”

He told, his company normally reviews its rates for fresh loans every month taking in consideration market developments. Nair added, “We have to take a view on rates on new loans.”

The HDFC official said his company will review lending rates depending on the cost of funds and experience. He said, “It (reviewing lending rates) is a continuous process. We take into account the cost of funds before taking a view (on rate revision).”

As per ICRA recent report, 30% share of the home loan market are held by HFCs, and the rest of the shares are held by the commercial banks. The report stated as on December 31, 2009, the total mortgage debt outstanding amounted to nearly Rs 413,700 crore, out of which 71% is of commercial banks and the rest is of HFCs.

RBI ask banks to provide 1% interest subsidy to home loan borrowers

Finance Minister Pranab Mukherjee in Budget 2009-10, had announced to provide interest subvention of 1% on housing loans of up to Rs 10 lakh for one year for houses having cost less than Rs 20 lakh. This scheme was announced with a view to push up the housing sector. Initially scheme was for a period of one year up to September 30, 2010, later it was extended till March 31, 2011.

The Reserve Bank of India has instructed banks to introduce a suitable mechanism to provide the benefit of the 1% interest subsidy to the home loan borrowers, announced by the government to buy a house of up to Rs 20 lakh.

RBI said in a notification said, “Banks are advised to put in place a suitable mechanism to ensure that the eligible borrowers avail of the benefit of interest subvention for one housing unit only.” Notification further said banks after sanctioning and disbursing eligible loans under the scheme can claim the disbursement of subsidy from the RBI on a monthly basis.

For this scheme government has made a provision of Rs 1,000 crore for 2009-10 and Rs 700 crore for the current financial year.