RBI cuts home loan risk weightage

In a move to boost the real estate sector, the Reserve Bank of India on Friday reduced the risk weight on home loans and residential housing projects.

RBI, on its website, stated the risk weight on housing loans up to R75 lakh has been brought down to 50% from the earlier requirement of 75%. On home loans above R75 lakh, the risk weight has been brought down to 75% from 100% earlier. “The government had provided additional tax benefits for home loan borrowers in the Budget and RBI has followed it up with these announcements,” said Keki Mistry, vice-chairman & CEO of HDFC Ltd.

The move is intended to help banks price loans better. However, bankers say it will be tough for them to cut home loan rates since they are already being offered at base rates, below which banks are not permitted to lend. In the premium housing segments, rates may see a marginal downtick. “A lot of banks offer home loans up to R75 lakh at the base rate. So for banks to lower interest rate on these loans, they would have to first reduce the base rate itself, which seems difficult right now,” said Ram Sangapure, general manager, Central Bank of India.

Recently, Bank of Baroda announced all its home loans will now be offered at 10.25% which is its base rate. Similarly, Indian Overseas Bank confirmed it offers home loans up to R75 lakh at the base rate.

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Lending Rates

Home Loan Rates to Stay High for Longer

If you were hoping for a cut in your home mortgage or loan on your car, as a result of easing inflation and slowing growth, you’ll have to wait much longer than expected thanks to recent measures taken by India’s central bank.

The Reserve Bank of India late Monday basically made it more expensive for banks to borrow funds, which in turn means that they will have limited cash to lend to consumers.

This will be a setback for individual borrowers, who haven’t seen a reduction in their mortgage rate for more than a year, despite the fact that RBI has cut the benchmark interest rate by 1.25 percent points to 7.25%, since April 2012. The major Indian banks have only marginally passed on this lower rate to consumers and currently charge between 9.95% and 12% for the typical home mortgage, depending on the amount and tenure of the loan.

Lately, however, banks were under pressure from the Indian finance minister to cut rates, in order to boost economic growth.

Earlier this month, a handful of state-run banks such as the Union Bank of India, Bank of India and Canara Bank, lowered their base rate – the minimum interest rate it can charge a borrower – by a quarter percentage point.

But in light of RBI’s recent measures, analysts say there won’t be any more cuts.

 

If anything, they say, there’s a slight chance that the RBI could increase interest rates, in an effort to make Indian assets more attractive to foreign investors – which would help stem the decline of the rupee.

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Need Loan

Looking For A Loan? An Arranger Can Help

The slogan on the hoarding caught your eye: “No paperwork, get loan in 7 days.” You quickly jotted down the phone number but wondered how an entity, other than a bank or a lending institution, can assist you in getting a loan.

Indeed, they are not loan providers, but are “loan arrangers”. These service providers help you secure a loan from the comfort of your home. From filling forms to submitting documents, every minute detail is taken care of by them. Here’s a look at the benefits of availing their services.

So in a way, they help you save time and ensure the process remains smooth for you.

“We basically work as an intermediary between a loan provider and a loan seeker. Our main functions include completing documentation, submitting documents to banks and ensuring that the process does not take much time. And we provide these services at the doorstep of customers,” says Surjit Singh Grover, head (e-commerce), Andromeda Marketing Pvt. Ltd, a Mumbai-based loan arranger. However, there are different types of loan arrangers in the market and you need to find one who will give you the best service.

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Home and car loans to cost more as PSU banks hike lending rates

State-run banks may not have formally raised their base lending rates despite a spike in market interest rates, but are charging even their marquee customers such as Housing Development Finance Corporation (HDFC) more, indicating that cost of home and car loans may rise.

With borrowers such as HDFC paying higher interest rates, bankers expect lending rates to firm up across the board as the Reserve Bank of India’s recent monetary tightening measures begin to bite.

The nation’s biggest mortgage lender, which was lent money by banks at base rate, is now contracting lines of credit at 50-75 basis points higher than base rates, said two persons familiar with the matter. HDFC may now be borrowing at 10.5% or 11%.

HDFC provides home loans in the range of 10.15% to 10.40% and if liquidity conditions continue to be tight, it may be forced to raise rates for its borrowers. Its subsidiary, HDFC Bank, the most profitable lender, has raised the base lending rate by 20 basis points to 9.80%.

“Several banks signed contracts with HDFC to lend at rates ranging from 10.50% to 11% and on a condition that they cannot repay the loan within 90 days of availing it,” said a banker who did not want to be identified. “Since the finance minister does not want banks to raise lending rates, banks have raised the spread on base rate to prevent margins from shrinking.”

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HDFC Bank Increases Lending Rates

 Lending Rates

HDFC Bank has become the first major lender in the country to increase its lending rate in the wake of Reserve Bank of India’s measures to tighten liquidity. The bank has increased its base rate to 9.8% from 9.6% with effect from August 3, a move that would affect all corporate borrowers who have availed of floating rate loans.

The hike, however,will not impact home loan customers as mortgages sold by HDFC Bank are on behalf of its parent which has not revised its benchmark prime lending rate yet.

Last week YES Bank was the first to revise its base rate. Some other private banks, including Axis Bank, have raised their short-term deposit rates. “If the measures last, I would expect that cost of deposits to rise and this will have an impact on asset pricing,” said Sunil Kaushal, chief executive for India and South Asia, Standard Chartered Bank. Interest rates have been inching up gradually with RBI planning to hold its liquidity tightening measures for the medium term.

Although both the Prime Minister and the finance minister have gone out of their way to announce that the central bank’s measures are “temporary” , RBI has told banks that there is no such commitment. In its meeting with banks, the central bank has refused to provide a timeline for the measures. However , RBI has told banks that they have the headroom to absorb some of the cost arising out of the increase in short-term rates since they have reduced their base rate by only 60 basis points as against a 100 basis point reduction in the repo rate by RBI since last year. “We wanted a non-disruptive adjustment to higher interest rates at the short end. And that has been happening and that is going to happen. Whether it will transmit to the long end is uncertain. As I said, it might well transmit, but our intention is to invert the yield curve such that short rates are higher, and the long rates stay where they are. That is good for the economy,” said RBI governor D Subbarao while announcing his quarterly policy review on Monday.

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