Housing loans are all set to become cheaper with several housing finance companies (HFCs) and private sector banks cut lending rates after spurt in deposits following demonetisation. Public sector banks (PSBs) have started rate cut war in a big way after the latest round of lending rates cut by these banks. HFCs are also following suit and reducing their lending rates.
Country’s largest mortgage lender, Housing Finance Development Corporation (HDFC), ICICI Bank and Indiabulls Housing Finance Ltd have cut retail home loan rates by 40-45 basis points, after State Bank Of India, the largest bank in the country, slashed its rates on Monday.
On Monday, Private sector lender ICICI Bank has reduced its home loan rates by 0.45 percent to 8.65 percent from 9.10 percent earlier. The bank has also reduced its one-year MCLR by 70 basis points (100bps = 1 percentage point) to 8.2 percent from 8.9 percent earlier.
ICICI Bank’s new rates offer loans up to Rs 75 lakh at 8.65 percent for female borrowers and 8.70 percent for others. For loans above Rs 5 crore, the interest rate has been reduced by 0.60 percent to 8.85 percent.
Country’s largest mortgage lender, Housing Development and Finance Corporation Ltd (HDFC) on Tuesday cut its home loan rates by up to 45 basis points following State Bank of India and ICICI Bank who announced a steep reduction in rates since January 1.
The home loans up to Rs 75 lakh will attract interest rate of 8.65 percent for women and 8.70 percent for others. For loans above Rs 75 lakh, the home loan rate now stands at 8.70 percent for women, and 8.75 percent for others, HDFC said in a statement. HDFC’s earlier benchmark rate was 9.1 per cent. The revised rates are effective from from January 3 and is applicable to new customers. HDFC’s home loan rate now stands five basis points above SBI’s rate.
Renu Sud Karnad, Managing Director, HDFC said that over the past couple of months we have seen a drop in our marginal costs of funds and as always HDFC has ensured that benefit is passed on to its customers.
Indiabulls Housing Finance also reduced its home loan rate by 0.45 percent to 8.70 percent. It has brought down home loan rates to 8.65 percent for loans up to Rs 75 lakh for women borrowers.
On Monday, Private sector Kotak Mahindra Bank too announced a cut in its MCLR by 0.20 percent to 0.45 percent across tenors. The bank has reduced MCLR by 0.20 percent to 9.0 percent from 9.20 percent for 1-year tenor.
The new Bandhan Bank also cut its MCLR by 1.48 per cent to 10.52 per cent effective on Tuesday. With this, the bank has cut its loan rate for small borrowers by almost 4 percentage points since it started operations in August 2015, Bandhan Bank said in a statement.
Country’s largest lender SBI had reduced its benchmark MCLR by 0.9 percent to 8.0 percent with effect from January 1. Home loan rates have fallen to their lowest level in six years with the State Bank of India cutting the effective rate to 8.60 percent from 9.10 percent.
The banks have made sharp reductions in the marginal cost-based lending rate (MCLR). MCLR was introduced last year by the RBI to ensure better transmission of its monetary policy actions. It is calculated on the marginal cost of borrowing and return on net worth for banks.
Banks have moved to MCLR as their new benchmark lending rate from April 2016, replacing the base rate system for new borrowers. While MCLR-based lending only applies to loans taken after April 2016, all the previous advances are benchmarked against the base rate.
However, only State Bank of India has cut the base rate, the lending rate to which the bulk of the loans are linked. While SBI cut its base rate by 0.05 percent, other lenders are still to take initiative on the base rate.
On December 31, when the 50-day demonetisation period ended, Prime Minister Narendra Modi in his new year eve address urged banks to focus on the needs of poor and middle classes. Thereafter, banks have been announcing sharp cuts to their MCLR rates. Non banking finance companies (NBFC) get their funds mainly from market borrowing and from banks. With cost of funds coming down on the back of a surge in liquidity due to demonetisation, many banks are reducing their lending rates.