M A I N   N E W S

Hike in housing loan interest rates post-Divali
Gaurav Choudhury
Tribune News Service

New Delhi, November 8
Interest rates, particularly on housing and car loans, are set to rise with commercial banks hinting strongly that an upward revision is due any time after Divali.

This has raised fears about a slowdown in the real estate sector, which has been growing at a scorching pace recently, as people defer investment decisions till the costs of borrowing come down.

“The liquidity position in the banking system has come down with a significant rise in credit offtake in recent months. In fact the credit-deposit ratio has increased by more than 100 per cent, the first time in several years. The soft-interest rate regime has definitely gone,” Chairman and Managing Director of the Punjab National Bank (PNB) S.S. Kohli said.

The home loan market is likely to be hit the most with market leader HDFC already saying that it will increase lending rates by 0.5 per cent after Divali.

Presently, home loan rates are at a historically low level of around seven per cent and even the car loan rate has touched a low of eight per cent.

Ever since commercial banks were given the discretion to fix lending rates since the administered interest rate regime was partially liberalised in the ’90s, this could be the first instance of lending rates actually being upwardly revised by the entire banking industry to cover rising costs.

Banks have been waiting for HDFC to make the first move and more and more banks are expected to follow suit, shortly after Divali.

The PNB Chairman said that the bank was adopting a “wait and watch” policy. We are going to closely monitor the situation for about 10 to 15 days,” Mr Kohli observed even as he said that a rise in lending rates is likely to be accompanied by a proportionate increase in deposit rates.

The hardening of the interest rate regime has been speculated ever since the RBI sprang a surprise by raising the repo rate by 0.25 per cent to 4.75 per cent in its credit policy announcements last month.

The repo rate is the interest rates charged by commercial banks from the RBI. The decision to hike the rate triggered speculation about an imminent rise in lending rates as an increase in repo rate would put pressure on liquidity by taking money out of the banking system even though the benchmark bank rate (the rate at which RBI disburses funds to commercial banks) have been left unchanged at six per cent.

In addition, the RBI has also increased the risk weightage for housing loans to 75 per cent that adds to the capital costs for banks, pressurising the liquidity further.

A Delhi-based banker said on condition of anonymity that a rise in interest rate would also result from a rise in petroleum prices as it would inject inflationary tendencies and banks would be forced to factor in the high costs of capital. Besides, the liquidity position in the banking is also expected to remain firm in the context of post-monsoon economy.

A report from Mumbai says that Housing Development Finance Corporation (HDFC) is to raise the interest rate on its home loans across all maturities by 0.50 per cent after Divali.

“We are raising the rates on all tenures on home loans by 0.50 per cent,” HDFC chairman Deepak Parekh told newspersons on the sidelines of a function to mark UK-based Berkley Plc taking stake in Intelenet, HDFC’s Business Process Outsourcing entity, here today.

The hike in deposit rates would follow soon but no specific time frame has been fixed, Mr Parekh said.

HOME PAGE | Punjab | Haryana | Jammu & Kashmir | Himachal Pradesh | Regional Briefs | Nation | Opinions |
| Business | Sports | World | Mailbag | Chandigarh | Ludhiana | Delhi |
| Calendar | Weather | Archive | Subscribe | Suggestion | E-mail |