The Hindu Business Line : Lull in home loan refinancing

Banks taking over home-loans from housing finance companies, or vice versa, are not uncommon. But a lull appears to have set in with borrowers thinking twice about incurring foreclosure charges and processing fees all over again and lending institutions too not enthusiastic about such takeovers.

Changed scene

The situation, industry insiders say, was different two years back, when the interest rate was going uphill and borrowers, especially those that opted for floating rate of interest, sought a change to fixed rates, fearing a rise in their monthly outgo.

However, with public sector banks competing with each other on the rate front, it made little sense for borrowers to shift their home loans from one bank to another.

But those who have borrowed from tech-savvy private banks, seem to be waiting for an opportunity to shift their loans to housing finance companies or public sector banks.

Borrowers say private banks initially woo customers. “Once you give in, you are caught. The human interface will be out and you will have no choice but to call the toll free number even for simple clarification. The automated service, though available round the clock, can confuse you with its list of options,’” says Mr Sridhar, who took a loan from a private bank initially, but later managed to shift it to a housing finance company.

While accepting that there is a perceptible reduction in the number of applications for take over of home loans, housing finance company sources claim that borrowers still seek their services because of their focus and core competence. They accuse banks of shifting priorities.

Why the shift?

But why would borrowers want to shift? Is it worth paying foreclosure charges and processing fee once again?

While most borrowers think twice before committing to such payments again, Mr Suresh, who works in a private company in Coimbatore, says he opted to shift his home loan from HDFC to State Bank of India about two years ago as the latter offered him the fixed rate plan. “The rate of interest was on the rise then, and I was reluctant to continue with the floating rate.”

So after paying the foreclosure charge of 2 per cent on the outstanding amount, he got his account shifted to SBI.

“The loan mela campaign was on and the bank was offering processing fee waiver and some concession on the rate as well. I was lucky to have got the sanction,” he recalls.

While banks did not mind such loan takeover initially, they have now started to view such accounts with caution, insist on higher margin and take longer time to process and clear the papers.

SBI sources say that there have not been many takeover accounts in recent months.

“The demand has fallen and newer projects are not coming up,” an SBI official observed. To trigger demand, the bank plans to organise one or two more home loan melas before the close of the festive season.

Indian Overseas Bank has also started dissuading people from shifting loans from one bank to another. The bank, while trying to identify eligible fresh takers of home loan, also seems to insist that the salary account of such individuals be routed through the bank.

The issue now appears to be the drag in projects with builders going slow on existing ones and postponing future sanctions as bookings are not happening as in the past.

Banks and housing finance companies admit the slackness, foresee a small correction in the rate but state that their growth rates have not been affected yet. Only time will tell.

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