The Hindu Business Line : Home loan rates seen up 25-50 bps in 6 months

The Managing Director of HDFC, Mr Keki Mistry, says that housing demand was robust and tax benefits would maintain the housing demand. According to him, housing loan rates are seen up 25-50 basis points in the next six months and one should not expect the demand to drop even if the rates rise.

He added that a lot of money is expected back in the banking system with the stock market coming down and in the long-term, interest rates would cool off.

Excerpts from CNBC-TV18's exclusive interview with Mr Keki Mistry:

What is your sense of where interest rates will head in India and how much of it will trickle down to the housing space?

For the short-term, there is ample liquidity in the system and because of liquidity, I don't see interest rates moving up. At least for the next four to six months, one will see interest rates at present levels. May be 6 months later, depending on the demand for credit, one could see interest rates moving up 25-50 basis points, but certainly not in the short-term and even for the long-term, it will function on demand for credit.

As a housing finance company do you worry that the interest rate scenario could be changing, which might become less benign than it has been for you over the last couple of years?

Not really, because if one looks at the sources of our funds, we have various sources. We raise funds through deposits, through term loans, bonds, and debentures and in the past, we have also done some amount of international funding. So we are able to mix and match our funding, in a manner in which we are able to raise funds at the lowest possible rates that we can.

As far as the demand for housing loans is concerned, we believe that even if interest rates were to go up 50 -100 basis points from these levels, I don't think it will have a material impact on the demand for housing loans. For example, take 2000-2006; six years ago, the average lending rate would have been 13.25 per cent and today, on a floating rate loan we are giving loans at 9 per cent. So on a topline basis, interest rates are down by 4.25 per cent compared to six years earlier.

If one looks at the fiscal concessions that are provided, as the interest on housing loans is tax deductible and effective from 2005, even the principal repayment on housing loans is tax deductible. So the net of tax-cost of taking a loan today in 2006 would be 5.18 per cent, for someone who is taking full advantage of tax laws.

But in 2000, the net of tax cost would have been about 11.73 per cent. So even if the rates were to go up about 100 basis points, although I don't think they will, the cost to our customer is not going to rise by 100 basis points, but it might go up by only 60-70 basis points, which means that his overall cost will still be less than 6 per cent. Hence I don't think it will impact the demand for housing loans.

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