NHB, LIC Housing, HDFC will wait banks’ move on base rates Home loans from housing finance companies (HFCs) are unlikely to see any immediate interest rate hike, even though banks have been raising lending rates for their home loan borrowers. The National Housing Bank (NHB), regulator for HFCs, said HFCs will not follow in the footsteps of banks immediately. “There is no real rush on the part of HFCs to raise rates. It will depend on their cost of funds,” RV Verma, executive director of NHB, told Financial Chronicle. Verma said HFCs are likely to wait and watch the action that banks take on base rates before taking a view on their lending rates. “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,” he said. According to a recent report by rating agency Icra, 59 per cent of HFCs’ borrowings were from commercial banks at the end of December 2009. Verma felt banks may have to revise their base rates upwards in the next review as they have been hiking their deposit rates, which will have an impact on their cost of funds as well. In recent days, many of the banks — including the State Bank of India, ICICI Bank, Punjab National Bank, Union Bank and IDBI Bank — have hiked their prime lending rates. Monthly installment payments of borrowers, who have loans on floating rates, are adjusted accordingly since the rates are linked to PLR. From July 1, banks have shifted to the base rate system, which debars them from lending to any entity below that floor rate. However, the earlier benchmark prime lending rate (the rate at which they give loans to their best rated borrowers) system is applicable to loans disbursed before July 1. RR Nair, director and chief executive officer of LIC Housing Finance, said his company will review the rates for existing borrowers at the beginning of the next quarter. “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,” Nair told Financial Chronicle. However, he said for fresh loans, the lender normally reviews its rates every month keeping market developments in view. “We have to take a view on rates on new loans,” Nair said. An HDFC official said a review of the lending rates would depend on the cost of funds and experience. “It (reviewing lending rates) is a continuous process. We take into account the cost of funds before taking a view (on rate revision),” he said. According to the recent Icra report, HFCs have a nearly 30 per cent share of the home loan market, while commercial banks hold the remaining portion. The report said as on December 31, 2009, the total mortgage debt outstanding was nearly Rs 413,700 crore, of which 71 per cent was with commercial banks and the rest with HFCs. Source:http://www.mydigitalfc.com/news/no-interest-rate-hike-home-loans-hfcs-655 Filed under: Home loans Tagged: Home loans
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