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Sudhanshu Ranade

Rates on totally unsecured medium-term loans are falling at precisely the time when those on fully secured home loans have moved up.

Chennai , Sept. 28

A SINGLE swallow does not make a summer. Yet, when HDFC and State Bank of India hiked interest rates on their housing loans a few weeks ago, the hearts of home loan borrowers across the country skipped a beat.

It could well be their turn next was the thought that crossed the minds of those who had taken a home loan from, say, LIC Housing Finance. The logic being simply that HDFC and SBI would not normally hike rates of interest if this was likely to lead to sizable migration of existing accounts, or diversion of potential business. Similarly, HDFC Bank's recent drop in rates on unsecured loans for their credit card holders, too, could have wider implications. In May this year, this bank offered `cash on call' loans to its credit card holders at 1.25 per cent per month, for periods as long as three years.

Absolutely no paper work was the promise. And the promise was kept. Just one phone call and you got your demand draft delivered at your doorstep `within four working days'.

Now, a mere four months later, HDFC Bank is offering cash-on-call loans for just 0.99 per cent per month. This may well be the lowest rate ever offered in the country for totally unsecured mid-term loans. Early last month, American Express announced a zero per cent `balance transfer' scheme for its credit card holders.

But that rate was applicable only for a three-month period. HDFC Bank's offer applies even for 36 month loans; for which EMI per thousand is quoted at Rs 34.

At the end of the day, borrow Rs 1 lakh and you find yourself paying back a little more than Rs 1.2 lakh.

The offer is definitely attractive for those in urgent need of money which they will be unable to repay in the near term. It is attractive in relation to earlier rates. And it is attractive in relation to likely trends in rates of interest on secured loans. From a larger perspective the main point of interest is that rates on totally unsecured medium-term loans are falling at precisely the time when rates on fully secured home loans have moved up.

More Stories on : Consumer Finance | Credit Market

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