The interest rate loan war intensified on Tuesday, with HDFC Ltd, the biggest non-bank mortgage player in the country, on Tuesday citing lower borrowing costs to slash home loan rates, a day after two of its biggest competitors — SBI and ICICI Bank.
For loans below ₹75 lakh, HDFC will charge 8.65% from women and 8.70% from others (compared to 9.15% for both earlier). On loans above ₹75 lakh, the rate has been cut by 0.45% for women and 0.40% for others, from 9.15% and 9.20% respectively.
The new rates will be effective January 3, 2017.
Keki Mistry, vice-chairman and CEO, HDFC said, “Costs have come down post demonetisation...If you look at the bond market, overall rates came down (by 1%) to about 7.5%, which was 8.5% about seven months ago. Competition through lower interest rate is a feel-good factor and can boost housing demand but it will also depend on job stability, which looks good at the moment.”
Indiabulls Housing Finance company also cut interest rates by 0.45% to 8.65%.
On Sunday, the country’s largest bank, State Bank of India (SBI) reduced its marginal cost based lending rates (MCLR) sharply by 0.90% to 8%. It is offering home loans at 8.65%. ICICI Bank cut its MCLR by 0.70% and on home loans, the rates have been reduced by up to 0.60%.
Among banks, Bank of India on Tuesday reduced the MCLR-based lending rate to 8.50%, while Corporation Bank set its overnight MCLR at 8.35%.
Ashwini Kumar Hooda, deputy MD, Indiabulls said, “The steep reduction is because our cost of borrowing from banks will come down to 7.6% from 8.10% earlier. Also, after almost 12 years, for a ₹30-lakh-house, the rent cheque for a person will be bigger than the EMI cheque (post tax benefits).”
This makes it costlier to rent a flat than pay EMI, and the math is expected to push people to buy homes.
According to DHFL CEO Harshil Mehta, “We saw a 20% increase in request at our call centres and more footfalls in our branches in Tier-2 &3 cities after the Prime Minister’s announcement on interest rebate on ₹9 lakh and ₹12 lakh loans. This does improve sentiment but there also needs to be adequate supply of affordable houses and for the government’s aim of credit growth and bringing more of the informal sector into the formal channels, a lot needs to be done.”
In his New Year’s-eve address to the nation, Prime Minister Narendra Modi had offered 4% interest rate subvention for home loans up to ₹9 lakh and 3% for loans up to ₹12 lakh. This captures a large portion of ‘affordable housing’ segment, defined as housing under ₹25 lakh.
Housing finance companies have grown by 15-18% in the last couple of years. This rate cut move could help push home loan demand further.
With benefits in the affordable housing segment announced by the government, it could prompt more business for banks and NBFCs focused on Tier-2 and 3 cities.