NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News  » Business » Home loan firms not to cut rates

Home loan firms not to cut rates

December 02, 2008 12:51 IST

A slew of measures by the Reserve Bank of India (RBI) during the last few weeks may have led to a reduction in home loan rates by public sector banks, but housing financial companies (HFCs) are in no mood to reduce lending rates.

HFCs are complaining that the cost of funds is showing no signs of easing as banks are still charging around 12-13 per cent, which is higher than the average lending rate of HFCs.

For instance, HDFC and LIC Housing Finance Company, which together account for over 70 per cent share of the HFC market, charge around 11.5 per cent, while home loans from Dewan Housing Finance Company costs between 12 and 14 per cent.

"Our interest rates are a function of our cost of funds. We have always passed on the benefit of lower cost of funds to our customers and we will continue to do the same. As of now, we have not seen interest rates coming down even though RBI has taken steps to provide liquidity. The issue today is not of liquidity, but of credit and until it is made available, it would be difficult for anyone to bring down interest rates," said HDFC Joint Managing Director Renu Sud Karnad.

"With banks cutting home loan rates, there is an expectation of rate cut in the housing sector, but our cost of funds still remains high. In the foreseeable future, there is no scope for reduction in lending rates," added LIC Housing Finance Chief Executive Officer R R Nair.

HFCs said the high cost of funds is affecting their ability to compete with public sector banks as the weighted average cost, on an averge, is 300 basis points higher. In contrast, lending rates are 50-100 basis points higher than those of public sector banks, he added.

"We are lending to NBFCs at about 13 per cent, which will not come down as we consider it as a high-risk sector," said an executive of a large public sector bank.

According to the industry estimate, HFCs constitute over 40 per cent of the Rs 120,000-crore (Rs 1,200 billion) housing finance market. Executives at these companies said HFCs would now account for 15 per cent of an increase in the pie as against 25 per cent in 2007-08.

Again, the recent move by the National Housing Bank (NHB) to raise the refinance rate to up to 12 per cent from around 9 per cent also did not help the cause of HFCs.

Although bigger players, backed by strong parentage, are still able to sustain the higher cost of funds, their smaller peers are finding it tough to operate in the current environment.

"The recent measures by the regulators have not translated into the availability of credit from banks. We operate in the lower-income group, with an average loan ticket size of Rs 6-6.50 lakh (Rs 600,000-650,000) with a very low margin. So, if things do not improve soon, we will be left with no choice, but to increase lending rates," said Dewan Housing finance vice chairman and managing director Kapil Wadhawan.

Wadhawan admitted that in the present year, the disbursement growth has slowed down compared with that of the last year.

"The real estate market is reeling. So, the demand is bound to come down. But, we hope to grow at around 18-20 per cent in incremental disbursement this year compared with over 25 per cent growth last year," he added.

Niladri Bhattacharya in Mumbai