HDFC Cuts Rates As Competition In Home Loan Market Heats Up

Housing Development Finance Corporation Ltd. (HDFC) on Thursday cut its home loan rates, as it tries to fend off aggressive competition from banking rivals like ICICI Bank and State Bank of India.

India's largest housing finance company will reduce rates by up to 15 basis points with effect from Friday, it said in a press release.

The reduction takes the rate for loans up to Rs 75 lakh to 9.15 percent for women and 9.20 percent for other borrowers. For loans above Rs 75 lakh, the rate will now stand at 9.25 percent for women, and 9.30 percent for others.

A basis point is one hundredth of a percentage point.

The reduction in rates applies to all new borrowers, an HDFC spokesperson said. Existing customers can take advantage of the new rates by applying for the reduction and paying a nominal fee that does not exceed Rs 5,000.

HDFC's decision to cut rates follows a cut in rates by State Bank of India and new schemes introduced by ICICI Bank.

Earlier this week, State Bank of India reduced interest rates by 0.15 percent to 9.15 percent per annum for home loans up to Rs 75 lakh. Women borrowers are being offered a rate of 9.10 percent by SBI. The country's largest lender has also waived off any processing fee on home loans as part of its year-end offer.

ICICI Bank's rates are marginally higher in a range of 9.2-9.25 percent. The private lender, however, has launched a home loan overdraft facility, which allows salaried customers to take personal loans of up to Rs 1 crore against their property.

Home loans is among the fastest growing loan categories at present and is considered to be relatively low risk when compared to other personal loan products like credit cards and auto loans.

Reserve Bank of India data shows that housing loans rose 18 percent between September 2015 and 2016, while overall credit growth for the banking sector has remained close to 10 percent.

Improved Transmission

The cut in rates from large lenders suggests that there is some pick-up in transmission of monetary policy. The Reserve Bank of India has cut rates by 175 basis points since the start of 2015 but lenders have been slow to pass on these rate cuts.

However with the central bank maintaining comfortable liquidity conditions and further rate cuts not ruled out, banks have seen a drop in their cost of fund, which they have passed on.

According to Reserve Bank of India norms that came into force on April 1 this year, banks fix marginal cost lending rates (MCLR) for different tenors based on their marginal cost of funds.

State Bank of India has cut its one-year MCLR to 8.9 percent from 9.05 percent earlier. ICICI Bank has cut its one-year MCLR by 10 basis points to 8.95 percent.