Even as the government and the Reserve Bank of India (RBI) are attempting to bring down the cost of home loans by giving concessions to commercial banks and housing finance companies (HFC), private banks and HFCs have not passed on the benefits of similar concessions given to them as far back as April 2008.
As a result, consumers of private banks and HFCs, who have taken home loans of upto Rs 30 lakh, have not got the benefits of lower interest rates that their public sector bank (PSB) cousins have. The differential can be as high as 1.5 percentage points (a sub-Rs 30 lakh customer of such banks and HFCs, who should have paid 11 per cent is actually paying 12.5 per cent).
“We facilitate the benefit but decision for rate cut depends on banks and HFCs,” said a senior Reserve Bank of India (RBI) official. Ideally, banks should pass on the benefit transferred by RBI to customers, but “we can’t force banks to cut rates.”
In April 2008, RBI had relaxed the risk weightage (the capital to be kept aside with the central bank for loans given) from 150 per cent to 50 per cent for loans below Rs 30 lakh. Which means, a bank that would have had to keep Rs 45 lakh with RBI for a Rs 30 lakh loan would now have to park just Rs 15 lakh. The interest earned on the difference of Rs 30 lakh was expected to be passed on to consumers.
But only PSBs have transferred this benefit. The sole exception: Punjab National Bank (PNB), which has restricted the benefit to loans below Rs 20 lakh.
“We treat priority sector (loans upto Rs 20 lakh) differently but as far as the risk weight is concerned it is an internal matter,” said RIS Sidhu, chief general manager, PNB. However when asked why benefits have not been passed even when the cost of funds has fallen, he said, “PNB in any case is charging the lowest rate and so I don’t think there is a need for us to create the differential at Rs 30 lakh.”
Private banks, however, have no segregation of rates on the basis of the risk weight benefits they get. So, the benefit they are getting are staying with them.
“We are present only in seven big cities where there are few properties at that price (below Rs 30 lakh) bracket,” said Kamlesh Rao, head retail assets, Kotak Mahindra Bank. “In big towns, the risk profile of a customer buying property below Rs 20 lakh is very high and that has to be taken into account.”
The HFC to partially pass on this benefit to consumers was ICICI Home Finance, which lowered its rate by 1.5 percentage points for such loans a week ago. But this benefit has been restricted to loans of less than Rs 20 lakh. The concerned official was “busy in meetings” and was not available for comment.
A Citibank spokesperson also could not immediately provide a response.
According to an HDFC spokesperson, the benefit is not “so significant” that it could be translated into a rate reduction.