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NHB move may trigger home loan rate war

BS Corporate Bureau in New Delhi | October 17, 2003 09:20 IST

The 40-basis point reduction in the interest rates for refinance by the National Housing Bank on Thursday is likely to trigger interest rates cut for housing loans by the smaller and medium housing finance companies by up to 100 basis points.

DHFL Vysya Housing Finance, which gets 60 per cent of its funds as refinance from NHB, has already cut its interest rates by 20-100 basis points. Its managing director R Nambirajan said: "This is a welcome step towards treating the smaller HFCs at par with other HFCs and banks."

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Even PNB Housing Finance managing director VP Choudhary said that the company would reduce its interest rates by 50-100 basis points.

Choudhary added that the housing sector is the first one to respond to any interest rate cut by either NHB or the Reserve Bank of India. He added that anyway there are indications that RBI will cut the repo rate as well as the bank rate by 25-50 basis points in its credit review policy on November 3.

He added that its interest rates are likely to decrease from the current 8.25 per cent and 9 per cent on 10 year and 15-year loans respectively by up to 100 basis points and the 7.75 interest rate on five year loans can even come down to 7 per cent.

The refinance comprises up to 50 per cent of company's funds.

However, there is not going to be any impact on the rates being offered by the bigger HFC's like ICICI or even HDFC.

"For the bigger housing finance companies like ours, refinance component comprises only about 3-4 per cent of the total book size and thus the impact of a cut in refinance rates would be very small. For us, it might therefore not result in a cut in interest rates," Rajiv Sabharwal, chief operating officer, ICICI Home Finance said.

NHB had reduced its interest rate on refinance to HFCs by 40 basis points with effect from October 10. With this reduction, the best rated HFC can avail housing loans up to Rs 10 lakh (Rs 1 million) at a floating rate of 6.5 per cent or a fixed rate of 6.7 per cent repayable within three years.

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