HDFC cuts interest rates by 10 bps, stays competitive

Moneycontrol Bureau

India's largest housing finance company HDFC reduced its retail prime lending rate (RPLR) by 10 basis points to 16.40 percent from February 06, 2013. Following the cut, a borrower can now take home loan up to Rs 30 lakh at 10.15 percent per annum and  for loans above Rs 30 lakh, s/he has to pay an interest of 10.40 percent.

"Over the past couple of months we have seen a drop in cash reserve ratio and cut in repo rate which have resulted in our costs of funds at a portfolio level come down. We have ensured that benefit is passed on to existing customers by way of a reduction in RPLR," Renu Sud Karnad, Managing Director, HDFC said in a release issued by the company on Tuesday. 

This move came just a week after India's largest lender - State Bank of India had decreased its base rate by 5 basis point to 9.70 percent, the lowest rate in the industry first offered by HDFC Bank since January 01, 2013.  Later, a slew of lenders including Bank of Baroda, Bank of India, Central Bank of India and many others joined the rate cut fray by reducing their base rate in the range of 5-25 bps. State-owned Vijaya Bank on Tuesday slashed its base rate by 25 bps to 10.20% p.a.

In its third quarter credit policy, the Reserve Bank of India cut the key policy (repo) rate by 25 bps to 7.75% and CRR by similar margin to 4%. Since April, 2012; the central bank decreased repo and CRR by 75 bps and 50 bps respectively. Repo is the rate at which banks borrow from RBI while CRR is the portion of deposits they are mandated to keep with the regulator.

After a long spell of rate hikes (around two-three years), this is the first time, the mortgage lender slashed its home loan rates. As on December 31, 2012; its loan book stood nearly at Rs 1.61 lakh crore, up 22% y-o-y excluding the share of loan portfolios that HDFC keeps selling to other lenders.

Can existing customers avail this rate cut benefit?

The new effective rates will automatically be adjusted with the tenure of loans availed by the existing customers. However, equated monthly installments (EMIs) will remain the same.

For example, as a HDFC home loan customer if you were paying Rs 35,000 EMI for a tenure of 300 months, you will continue to pay the same post the rate cut. But your tenure may be reduced to 290 months.  

Base rate vs prime lending rate

Generally, banks have base rate, below which they are not allowed to lend. So, banks charge premium over and above base rates at the time of lending. 

Also read:   Can cut rates only when deposit rates cool: HDFC Bank

For housing finance companies, PLR is a kind of benchmark rate but they lend at a discount to it. For example, HDFC allows a discount of 6.25 percent from its RPLR to offer a rate of 10.15 percent for home loans upto Rs 30 lakh.

More rate cuts on the anvil?

With this rate cut move, according to market analysts, other biggies like ICICI Bank, Axis Bank, LIC Housing Finance are expected to revise their interest rates to stay competitive in the home loan market.  

 

HFCs / Banks	Prime Lending Rate (%)	Base rate (%)
HDFC	16.40
LICHFC	14.40
SBI		9.70
HDFC Bank		9.70
ICICI Bank		9.75
Bank of Baroda		10.25

N.B  1 ) HFCs lend at a discount to their PLRs while banks lend at a premium to their base rates.

2) HDFC is offering home loans in the range of 10.15-10.40% while LICHF charges interest in the range of 10-10.25% for the same.

 

 

saikat.das@network18online.com