HDFC unlikely to cut rates unless cost of funds dips

Moneycontrol Bureau

India's largest mortgage lender HDFC is unlikely to cut interest rates unless there is noticeable fall in the cost of funds. The lender had last cut its retail prime lending rate by 10 basis points to 16.40 percent in February, 2013.

"In January we had seen a fall in our cost of funds and later, we passed it on to our customers. Right now, no bank is slashing rate following a policy rate cut. Liquidity still remains tight. Unless borrowing cost comes down and liquidity eases, rate cuts are unlikely to happen," Keki Mistry, chief executive officer, told moneycontrol.com after announcing the fourth quarter results.

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In its annual monetary policy the Reserve Bank of India reduced the policy (repo) rate by 25 basis points to 7.25 percent. However, no lender so far passed on benefits of rate cut as their cost of funds are mostly related to cash reserve ratio (CRR) or the portion (currently at 4 percent) of deposits banks are mandated to keep with the central bank.

Repo is the rate at which banks borrow from RBI while housing finance companies always offer interest rates at a discount to their respective retail prime lending rates.

Since February, HDFC's cost of funds have fallen slightly. The lender generally does not disclose its cost of funds. However, their spread or the difference between interest on loans over the cost of borrowings stood at 2.30 percent for the year ended March 31, 2013. For last so many quarters, it has been steady at around 2.30 percent only.

The lender raises funds through public deposits, bonds and debentures as well as bank loans.

"We avail the cheapest avenue to mop up funds. Moreover, it always depends on current interest rate scenario," said Mistry.

On economy

"The worst is perhaps behind us. GDP may grow at 6 percent in FY14. However, it depends on a lot of factors like inflation, monsoon, global commodity prices and so on," the CEO said.

Home loan growth in FY14

Mistry does not see any fall in demand for home loans due to sluggish economy. People will keep buying homes irrespective of any interest rate fluctuations. Buying home is a requirement, he is of opinion.

Currently, HDFC offers a loan to value (LTV) ratio of 65 percent for an average house price of Rs 30 lakh. This means, the lender will sanction a maximum of about Rs 20 lakh for buying a house worth Rs 30 lakh. It offers loans up to Rs 30 lakh at an interest rate of 10.15  percent while it is 10.40 percent for loans above Rs 30 lakh.

saikat.das@network18online.com