HDFC cuts home loan rate by 25 bps

Housing Finance and Development Corp (HDFC), India’s largest mortgage financier, has reduced home loan rates by 25 basis points to 9.65 per cent. The lender will offer an additional discount of five bps to women.

The new rates, applicable to both existing and new borrowers, are effective Tuesday.

This follows lending rate cuts by a host of lenders, such as State Bank of India (SBI) and ICICI Bank, in response to a 50-bps repo rate cut by the Reserve Bank of India at its bimonthly policy review meeting last week. While SBI reduced its base rate by 40 bps to 9.3 per cent, ICICI Bank cut the rate by 35 bps to 9.35 per cent. SBI has decided to add a margin of 25 bps to its base rate for new home loan borrowers. ICICI Bank is yet to decide whether or not to continue with the same margin (20 bps higher than the base rate).

Currently, both SBI and ICICI Bank’s home loan rate is 9.55 per cent.

Speaking on the sidelines of an event early on Monday, HDFC Vice-Chairman and chief executive Keki Mistry indicated a rate cut was coming. “You will hear an announcement from our side once the asset-liability management committee meets. Now, we have some sense of how funding costs have come down,” he said.

So far this year, RBI has cut the policy rate by 125 bps. But, most lenders have cut their base rates only 50-70 bps. RBI has expressed concern at the low transmission of policy rate cuts.

“Transmission will happen with a lag effect, but it will happen,” Mistry said, adding HDFC would maintain spreads at 2.2-2.35 per cent, its historical levels.

He said the risk weight for housing loans was high in India, adding these should fall.

At its policy review meeting last week, RBI had proposed to reduce the risk weight on individual home loans. “Currently, the minimum risk weight applicable on individual housing loans is 50 per cent. With a view to improving ‘affordability of low cost housing’ for economically weaker sections and low-income groups and giving a fillip to ‘housing for all’, it is proposed to reduce the risk weight applicable to lower-value but well collateralised individual housing loans. Detailed guidelines are being issued separately,” RBI had said.

With no price increase in the past two years, the residential real estate market had seen a price correction, Mistry said. “We have already seen developers cut prices when buyers sit across the table,” he said, adding banks and housing finance companies would pass on the cut in interest rates in the next few months. Mistry said banks and housing finance companies should be allowed to fund land-buying. Currently, RBI norms do not allow such activity.