If you think customers of housing finance companies (HFCs) are going to migrate to public sector banks (PSBs) in big way after the latest round of lending rate cuts by these banks, think again.

With the spread between average home loan rates of top PSBs and those of HFCs widening to about 60 basis points, HFCs are gearing up to follow suit and cut their lending rates, several top executives said.

HFCs are understood to be considering lending rate cuts to retain customers. The country’s largest mortgage lender HDFC on Tuesday reduced its home loan rates by up to 45 basis points. Loans up to ₹75 lakh will attract interest rate of 8.7 per cent per annum, while it will be 8.75 per cent for higher amounts, HDFC said in a statement.

Indiabulls Housing Finance, too, cut its home loan rates by 45 basis points to 8.65 per cent. It is the pressure arising from the latest interest rate cuts by PSBs that weighed on the share prices of HFCs on Tuesday.

The share prices of several top-notch HFCs ended in the red despite the benchmark stock indices closing in the green.

“Just wait for the next few days. You will see several housing finance companies too dropping their lending rates,” a senior official from a housing finance company said.

Harshil Mehta, CEO, DHFL, said the company has always been at the forefront when it comes to passing on the benefit of rate-cuts to end-customers. “We are closely watching the situation and will promptly pass on the benefit of reduction of MCLR to end-customers as part of our commitment to transform the lives of lower and middle income segment by enabling access to home ownership,” Mehta added.

Anil Kothuri, President and Head-Retail Finance, Edelweiss Financial Services, said that he does not see PSBs gaining any advantage vis-à-vis HFCs after the former’s latest round of lending rate cuts.

“It all depends on the cost of funds for HFCs. Both HFCs and PSBs operate in different segments. This lending rate reduction by PSBs does not put each other at a advantage or disadvantage,” he added.

After December 31, when the 50-day demonetisation period ended, several large PSBs slashed their one-year marginal cost of funds-based lending rate (MCLR) by 70-90 basis points, leading to sharp fall in home loan rates.

Low-cost housing

Welcoming the new measures announced by Prime Minister Narendra Modi for the housing sector, Amit Kirit Magia, Managing Director & CEO, Khush Housing Finance, said there are various benefits, including interest subsidy of up to ₹2.2 lakh for home-buyers.

“The Prime Minister has effectively made the EMI cheque smaller than the rent cheque for the affordable housing segment — a tremendously positive announcement.”

When coupled with the anticipated drop in interest rates for housing loans, the credit-linked subsidy scheme will ensure millions become eligible for home loans, he added.

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