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Pre-budget fall for home loan rates?

india Updated: Feb 04, 2008 01:59 IST
Arun Kumar
Arun Kumar
Hindustan Times
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Home loan interest rates are expected to fall in the weeks leading to the budget.

After the HDFC reduced its interest rate by 25 basis points, ICICI Bank and other public sector banks are also thinking of reducing their interest rates by 25 to 50 basis points. Sources in ICICI Bank said the rate cut announcement is expected in a couple of weeks.

“We are evaluating the interest rate scenario and likely to take a final decision shortly,” a source in the bank said. “Given the global trend, there is case of softening of the interest rate. However, much depends upon the inflation, which is still at around 4 per cent with upward bias.”

However, bankers are skeptical that the reduction in the interest rate may increase the home loan demand.

Since January 2006, the interest rate has been increased by 4 per cent and the equated monthly installment (EMI) has increased by Rs 250 per lakh for 20-year loan. A reduction of 50 basis points would effectively reduce the EMI by around Rs 34 for a 20-year loan.

Bankers said the current decline in the home loan disbursement is primarily because of the sharp rise in real estate prices, as many borrowers are finding it difficult to fork out such huge EMIs.

Union Bank of India Chairman MV Nair said there is a case for deposit rates and lending rates to come down.

The Bank of Maharashtra is planning to reduce lending rates in some segments next week. “We might effect an interest rate cut in the range of 0.25-0.50 per cent,” said bank chairman MD Mallya.