New Delhi: Housing finance major, Housing Development Finance Corporation Ltd, (HDFC) has bitten the rate cut bullet.
From Tuesday, the country's largest home loan disburser will lower rates by 50 basis points or half per cent on new home loans. This will bring down interest floating rate to 10.5 per cent .
"HDFC was reviewing interest rates and any change will be announced in the next few days. Overall, the industry will be reducing interest rates. HDFC could make a maximum of 50 basis point cut,” HDFC Chairman Deepak Parekh said.
"There is a huge inflow of remittances, FDI and FII, which could be inflationary so we should behave with caution and not do anything in a hurry," Parekh was quoted by agencies as saying.
"Property prices have softened, sales have slowed down and the investor is out of the system," he added.
HDFC officials have also said it will re-look at rates on its existing home loans after the Reserve Bank of India (RBI) credit policy, which will be out on October 31.
Asked about the rate cut by the RBI in the light of moderating inflation rate, Parekh said, though there was a case for cutting rates, one had to be cautious of the money supply in the system.
And HDFC is not alone in this venture. Bank of Baroda too has cut its home loan rate for a Rs 20 lakh loan from 10.75 per cent to 10.25 per cent for a tenure of 20 years.
Similarly, a host of large PSU banks — including the State Bank of India, Union Bank and Punjab National Bank — are all looking at cutting home loan rates, by nearly half a percentage point.
Currently, SBI charges a floating interest rate of 11.25 per cent for a 20 year loan, Union Bank charges 10.75 per cent and Punjab National Bank 9.5 per cent.
However, ICICI Bank is currently not looking at slashing rates. According to sources in the bank, their cost of funds is still high and hence there is, as of now, no scope to offer lower rates even temporarily for the festive season.
Meanwhile, GE too has launched it first floating rate product at 9.99 per cent for a minimum of 20 years for a minimum loan of Rs 10 lakh. GE claims its current cost of funds are much lower than the 9.5 per cent being projected by competition and hence the competitive rate.
RBI's Stand
Banks have started cutting interest rates, but will the RBI follow the same path?
Anil Singhvi of Notz Stucki says inflation and growth will be two major concerns for RBI before taking any decision.
"RBI will really have to look at inflation and we have been seeing this in their past policies too, and as we move towards elections — which I feel will be held in the next 8-12 months time — RBI will continue focus on inflation," he said.
He added that looking into inflation was justified especially when one took into account, the spike in oil prices.
"I don't see interest rates coming down in India dramatically. Maybe just 25-50 basis points," said Singhvi.
(With inputs from agency)
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