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The already low margins will limit any further reduction in interest rates on housing loans by banks and housing finance companies (HFCs).
Keki Mistry, Vice-Chairman and CEO, HDFC, said, “In due course, as cost of funds reduces, interest rates may come down but nothing immediately…Historically, we have operated with a spread. A spread gap is typically about 15 bps — ranging between 2.2 and 2.35. And we have managed our spreads in that range. Whenever we see the spread going higher, we will pass on.”
A spread is the difference between lending rates offered to borrowers and cost of funds to companies.
HDFC, the largest mortgage player, has an average loan size of ₹23.4 lakh.
According to the RBI’s latest guidelines, in the case of individual housing loans falling under the category of up to ₹30 lakh, the loan-to-value (LTV) ratio would be up to 90 per cent. Earlier, the facility was available only in cases where the loan was up to ₹20 lakh. For loans above ₹30 lakh and up to ₹75 lakh, the LTV will be up to 80 per cent and for those above ₹75 lakh, it will be 75 per cent.
This means, now with lower risk weights, banks and HFCs can do more business with the same amount of capital.
A report by Crisil earlier this month said, “We expect interest rate on home loans to come down by another 25-30 bps over the next few months, triggered by the RBI’s move to lower risk weights on select home loans (up to ₹75 lakh) where borrowers are willing to put in more money and thus lower the loan-to-value ratio.”
However, HFCs do not see further reduction in cost of funds and hence rates may remain largely unchanged.
Bajaj Finance Managing Director Rajeev Jain said, “Our rates are already comparable to bank rates. Also, there is very little scope to bring down the rates. Home loan business operates on very low margins and we have passed on a significant part of the policy rate cut to borrowers.”
The festival season is also likely to bring in more growth in the home loan business with realty prices undergoing price correction.
Hopeful of seeing continued growth momentum in the affordable housing segment in and after the festival season, Ashwini Kumar Hooda, Deputy Managing Director, Indiabulls Housing Finance, said that since, in general, the real estate sector was seeing a slowdown, they were hopeful of growing their home loan book.
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