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Cheap home loans may just be a dream

The banks may not pass on the benefits of reduced interest rates to the borrowers

Apnaloan.com Research Bureau

10 Aug 2007

New Delhi: Customers looking for a reprieve in their home loan EMIs may have to wait longer,or worse still, expect a further hike in interest rates. Despite a cut in risk weights on home loans up toRs 20 lakh, banks are in no mood to lower the rates.


They are looking at differential pricing of loans based on their amount and tenure. Public sector banks, which had sofar refrainedfrom raising rates following a government diktat to hold rates on home loans, are now planning to go for a rate hike. Even private banks may take some time to pick up the cue.


With cost of funds increasing, lending rates have only one way to go upwards. With banks belting out super-saver deposit schemes yielding 9-9.5% returns, the rates on advances need to go up too. In the previous two instances when RBI had increased the benchmark rates, most state-owned banks did not go for a rate hike. On the other hand, each time RBI hiked rates, private sector banks followed suit.


For public sector banks, interest rates on loans up to Rs 20 lakh are in the range of 9-10%, compared to 13-14% for private banks. "The decision on home loan rates will be determined by a number of factors, including cost of funds," sources at ICICI Bank said. The bank will decide on home loan rates soon.


While new borrowers may be spared, the impact of a rate hike on existing borrowers will have to be studied,executive director of a public sector bank said. "Rates will now be determined on both the amount and duration of the loan."


With a risk weight classification of above and below Rs 20 lakh, banks will now price loans differently. Loans above Rs 20 lakh will cost more than those below Rs 20 lakh, at the same time being dictated by the tenure of the loan, said Punjab National Bank chief general manager U S Bhargava.


(Courtesy: Economic Times)