Financial Daily from THE HINDU group of publications
Wednesday, Apr 13, 2005

Port Info

Group Sites

Home Page - Interest Rates
Money & Banking - Housing Finance

Home loans set to turn costlier

Rukmani Vishwanath

Mumbai , April 12

HOME loans may become dearer to borrowers in the near future. Banks and financial institutions are understood to be considering a 25-50 basis points hike in housing loan rates shortly, given the steady hardening in domestic bond yields.

The 10-year benchmark paper is now trading at over seven per cent levels, rising by 32 basis points in less than a fortnight of the new fiscal.

There are also concerns that a possible hike in domestic fuel prices may lead to a spike in the inflation rate in the months to come.

At this point, it appears that a revision in fixed rate loans will precede a hike on floaters.

Analysts are of the view that a rate revision is imminent, but also that most players in the home loan market will wait until the Reserve Bank of India releases its annual policy statement on April 28 before they make their move.

"A hike in rates depends on each lender's funding composition and timing when the liabilities have to be re-priced. We increased our retail prime lending rate (RPLR) by 50 basis points last December. If the existing scenario of the hardening in bond yields continues, then the rates may have to be revisited," said Mr V.S. Ranjan, General Manager (Corporate Planning and Finance), HDFC.

In November 2004, yielding to the pressures of a substantial rise in bond yields, HDFC had hiked floating rates on its home loans by 50 basis points, with a corresponding change in the RPLR. The fixed rates were left unchanged.

Around the same time, ICICI Bank, another big player in the home loans market, had also hiked its rates by 50-75 basis points. SBI too raised rates on home loans by 25-50 basis points.

"Given the current market and economic scenario, there will be pressure on home loan rates. In the medium term there will be an upward trend, but the rise will be around 25-50 basis points and not alarmingly high," said Mr V.S.R. Murthy, General Manager (Retail), Union Bank of India.

"In any event, one has to wait for the RBI's annual policy statement to see if there is any clarity on the direction of interest rates before taking a view in this regard."

Market participants are also keenly watching the short-term segment in the debt market to see if there will be an upward movement in the yields. Some are of the view that only when the yields in the short-term segments start to rise will banks and institutions raise their interest rates on home loans, as most floating rate loans are linked to short-term gilts.

"At this point, I don't see much pressure on home loan rates since most floating rate loans are linked to the short-term gilts in the market. However, there might be some change on the fixed rate loans, as they are linked to the long-term securities," said Mr Nageshwar Rao, Chief Executive (Commercial Banking SBU), IDBI Ltd.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Industrial growth in Feb falls to 4.9 pc

HLL looks to beverages for foods biz growth
Hero Honda Q4 net dips 2 pc — Full-year profit up 11 pc; to pay 1,000 pc dividend
End to Monsanto's Bt cotton monopoly?
Open offers fail to click as market prices rule higher
RBI draft guidelines — Credit risk on banks purchasing NPAs
Home loans set to turn costlier

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line