HDFC cuts home loan rate by 50bps

Following the lines of LIC Housing Finance (LICHF) and the State Bank of India (SBI), the Housing Development Finance Corporation (HDFC) – the biggest market player in home loan sector with shares around 40% of new loans every year – on Tuesday announced to slash its retail prime lending rate (RPLR) by 50 basis points (bps).

LIC and SBI have recently announced attractive home loan packages for the new and existing customers as the Reserve Bank of India (RBI) had asked the banks to pass the benefits of reduction in cost of funds and rate cut to the borrowers.

The recent rate cut of HDFC will benefit to all existing home loan borrowers especially those who have recently taken the debts owing to having long term periods in their kitty. The rate cut has been effective from March 25.

This is for the second time in last three months when HDFC has brought down interest rates for the existing borrows.

Here, 50 bps (0.50%) rate cut means a cut of Rs.34 in the equally monthly installment (EMI) of Rs.1,00,000 debt for the period of 20 years. So, if someone who has recently taken the housing loans of Rs.30,00,000 for the period of 20 years in floating rate option would have to pay less of Rs.12240 annually until the announcement of new revision in home loan rate.

This move of HDFC is likely to boost the market as several other market players like ICICI bank, Bank of Baroda, Punjab National Bank and others public and private sector banks may also pursue the same.

This quarter, the home loan sector is going better as against the previous when there were signs of slowdown in demands because of the financial crisis, menace of job loss, and the hope of sliding price in real estate sector.

“February has been better, as we saw new enquiries. The combination of reduction in interest rate and cut by builders will revive demand,” said HDFC joint Managing Director Renu Sud Karnad.

Commenting over the recent rate cut, she said, “In the current environment, there is a time gap between the reduction in the marginal cost of funds and the portfolio cost. Marginal cost of borrowing had come down earlier this year, and the same was passed on to our new customers through our special limited period offer (rates beginning at 9.5%), we are now seeing a reduction in the costs on a portfolio level, and, as in the past, HDFC has ensured that the reduction in cost is passed on to existing customers by way of a reduction in RPLR.”

While responding to SBI’s move that has announced a Happy Home scheme in which the new customers or the home loan switcher would have to pay the home loan at the interest rate of only 8% for the first year, Karnad said, “What you are forgetting is that SBI’s home loan rate goes from 8% to 10.25% in the second year for loans between Rs 20 lakh and Rs 30 lakh, whereas our interest rates on loans below Rs 20 lakh are at 9.5%.” So, not much switching is going to happen, added Sud.

Currently HDFC gives loans up to Rs 30 lakh for 20-yr tenure at 9.5%, while for above Rs.30lakh debt, it charges 10.5% for the same tenure.

Besides HDFC, Canara Bank too has announced home loans up to Rs 30 lakh at 8.25% for the first 12 months, 9.25% for the next 48 months, and cut Basic Prime Lending Rate (BPLR) by 2.50% subject to a minimum of 10.00% thereafter.