Differential rate of interest for home loans. Fair or unfair?

Magicbricks Moderator says: In its bid to boost the realty segment, many state-owned banks have announced home loans at reduced rates. After the rate cuts, SBI home loans of up to Rs 30 lakh, for tenures between 15 and 25 years, will be available at 9.5%. Loans of Rs 30 lakh to Rs 75 lakh at 10.75% and those above Rs 75 lakh at 11%. 

The government is proposing a differential rate of interest for home loans more than Rs 75 lakh. What would you call this measure?
- Fair
- Unfair

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RBI hikes CRR by 50 points, home loans dearer?

The war against inflation seems to have reached its peak. In a bid to check inflation, on Tuesday the Reserve Bank of India (RBI) has raised the bank balances commercial banks need to     maintain with it. Banks and bond brokers are visibly upset with RBI’s this Valentine Day gift. Mood is grim as some of them feel this move wipe out their last 10 months earning. CRR or Cash Reserve Ratio is the slice of customer deposits that banks mandatorily have to set aside as reserve. The increase has reduced the amount of money banks can lend out by whopping Rs14,000 crore. The bank’s stocks are set to get a beating when the stock market opens on Wednesday. The American Depository Receipts (ADRs) of ICICI Bank and HDFC Bank have already gone down sharply.

The measure that RBI took surprisingly after market hours on Tuesday, for the second time in last couple of months, will appear in two potent doses, 5.75% from February 17 and then 6% from March 3.

Since banks will now charge higher rates home loans rates for real estate will go up. Analysts however feel that an increase in rates more than genuine buyers will put speculative investors in soup.   

Home interest rate may come down: Finance Minister

Finance minister P Chidambaram while addressing the Federation of Indian Chambers of Commerce’s annual general meeting said if the growth of credit to the housing sector and commercial real estate is controlled, interest rates on home loans may come down. He believes that credit to the housing sector has been growing at 54%, and to commercial real estate at 102%, which can not be sustained. Since the credit growth to both the segments of the sector is startlingly high, the Reserve Bank has to step in with some precautionary prudent steps. In the last 20 months, the overall credit growth has been 30.5% and that this fact has actually worried the apex bank of India. So, to moderate credit demand and curb inflation Reserve Bank has raised repo and reseve rates respectively by 75 and 50 basis points. 

Home loan DSAs thing of past?

The home loan market is going to experience a significant makeover in the coming days. The existing system of selling home loans via direct sales agents or DSAs as commissioned by the banks or housing finance companies may see a complete do up. The National Housing Bank (NHB) in fact has asked all these banks to replace the DSAs with professional home loan counselors. NHB in consultation with other banks and HFCs wants to create a common forum which can act as a self regulatory organization. NHB feels that move like this is need of the hour as DSAs do not follow any standard or uniform service index be it advice, fees, charges, which leads to complications later. This is also important customer protection has long been on the priority list of Reserve Bank of India.

Major home loan or mortgage markets of countries like Australia, UK, US follow comprehensive practices as far as consumer protection is concerned. In UK, consumer customers have a withdrawal right and can withdraw from the contract within a given period of time.    

HDFC bank hikes PLR by 0.5%

HDFC has hiked its prime lending rate by 50 basis points to 12. 75% and also has increased the floating rate by 50 basis points. What it means, consumers will pay 9.5%-10% to avail loans below Rs. 10 lakhs and 9.50% for Rs. 10 Lakh and above. The bank with more than 20 lakh customers however has unchanged its fixed loan rate which stands at 11%. 

Other big home loan providers like ICICI Bank, State Bank of India (SBI) and Bank of Baroda have already hiked their PLRs by 50 basis points.

Industry analysts feel that the hike will help HDFC remain competitive and expand its margin. The bank was established in 1977.

LIC in pact with Dena Bank

Life Insurance Corporation (LIC) has joined hands with Dena Bank to launch a group mortgage redemption assurance scheme for home loan borrowers.

Under the scheme a home loan borrower can comprehensively cover the outstanding home loan. They will receive an insurance cover with this. However, the insurance cover is only limited to outstanding loan subject to a maximum of Rs. 1 crore. The applicants will pay a single premium for the entire loan term, which may range from three to twenty years, at the time of commencement of the scheme. In the event of the debt of the borrower during the term of cover, the outstanding loan can be set off against the policy proceeds settled by LIC. 

Press Release here

SBI hikes lending rates by 50 bps

India’s largest lender, State Bank of India joined other banks by raising its benchmark lending rate. Market analysts believe the move will surely disappoint the blazing pace of loan growth in the country.

The loan to individuals as well as to the companies has been growing at an annual rate of about 30 percent since last year. RBI to restrain the easy cash outflow has already declared on Dec 8 that it already has increased the proportion of deposits banks were required to keep in cash.

SBI declared on last Wednesday that it was elating its benchmark lending rate a good half a percentage point to 11.5 percent.

Similar News in The Times of India

ICICI home loan rates go up third time in a year

Four days after Reserve Bank of India (RBI) hiked the cash reserve ratio, country’s largest private sector bank ICICI announced that it would hike interest rates on floating rate home loans and corporate advances by half a percentage point. The bank will also raise interest rates on domestic term deposits by 25 to 50 basis points across various tenors. The bank's floating reference rate (FRR) has been increased to 10.75 per cent from 10.25 per cent. For the existing customers (floating rate) the increased FRR by 50 basis points will be effective from January, 1, 2007.

 
After ICICI Bank, observers expect banks like Housing Development Finance Corporation (HDFC) to soon hike rates. Public sector banks who earlier have indicated that they are not planning to revise the interest rate structure may now follow suit by hiking home loan rates as well.

 
State Bank of India (SBI) last week raised interest rates on domestic term deposits by 25 to 75 basis points may again up home loan rates by 25 to 50 basis points.   

Read more in The Times of India 

Home loan costlier, RBI raises CRR to control inflation

The ghost of rising interest rate is back again, fourth time in a year to haunt the home loan borrowers. Reserve Bank of India unable to control the inflationary pressure and hysterical flow of capital into the stock market has whipped the strongest possible monetary policy tool to extract as much as Rs. 13,500 crore from the Indian banks. Contrary to market estimate the central bank on Friday announced a 50 point hike in the cash reserve ratio (CRR) from 5 to 5.50% in two phase. With this move the Reserve Bank wants the banks to park more money with RBI and so that left with less money to lend.

"The move will drain out Rs 13,000 crore from the banking system and this will result in an upward pressure on interest rates," said Partho Mukherjee, vice-president (treasury), UTI Bank.

Is RBI planning another home loan hike?

Reserve Bank of India (RBI) while announcing its monetary policy on January 30, some foresee, may come up with another hike in home loan rates. There is a growing belief that RBI on account of inflationary concerns may hike home loan rates by 25 basis points, thus forcing banks to hike their retail lending rates as well. Some bankers are of the opinion that since bank rates are on peak and extreme rise of property prices in places like Mumbai and Delhi has already curtailed the demand a lot thus lessening the pressure on banks to release funds. Some bankers, however, opine that since wholesale price inflation touched its peak in 2006, and demand for home loan remains the same the central bank to avoid its basket of worries may inch up the home loan rates by 25 point basis.

Similar Report
Banks split on hike in home loan rates