Home loan rate cuts didn't dent the margins: Bankers and analysts

Experts don't see further cuts boosting demand, with rates already at record lows

The margins of banks have been unaffected by cuts in home loan rates and a further reduction is unlikely to translate into a significant increase in demand, according to bankers and analysts.

Keki Mistry, vice-chairman and chief executive, HDFC, said the new funding was happening at lower rates than earlier. This has reduced the weighted average cost of funds and hence lender(s) passed on the benefits to customers. This has not impacted margins.

Seconding Mistry, Prashant Kumar, managing director and chief executive, YES Bank, said just as loan rates had gone down, the cost of deposits had lowered. This balances out, indicating no negative impact on margins.

SBI has cut rates by 10 basis points. The revised rates will start with 6.70 per cent and would be linked to the CIBIL credit score.

HDFC slashed the rate by five basis points. The revised rate is 6.75 per cent for customers with high credit scores.

Banks that have reduced rates have surplus liquidity. They are trying to book customers (at lower rates) and when the rate starts moving up, home loan rates would also be adjusted upwards.
 

Anuj Puri, chairman, ANAROCK Property Consultants, said lower home loan rates meant lower margins for the banks. But this can be covered by the increase in volumes of homebuyers.

Another driver for banks is relatively good returns on government bonds. For home loans, the credit cost is low (provisions set aside to cover defaults) and come with collateral. Banks are able to deploy money in home loans at better rates than what they would get when they park funds with a reverse repo window at RBI.

While giving home loans, banks and housing finance companies are not calculating just interest costs and yields. They are looking at prospects for more loans and business opportunities.  
 

Anil Gupta, vice-president and sector head, financial sector ratings, ICRA, said banks and finance companies were looking at fee-based income and also keeping liabilities (maintaining deposits).

As for further room for cutting rates, analysts said small changes of 5-10 basis points could happen. Any major cuts are ruled out when bond markets are signalling that the cycle is changing and yields on bonds would move up.

Prakash Agarwal of India Ratings said the rates were at the bottom and interest rates on home loans had declined by 150-200 basis points in the past two years.

Mortgage rates are expected to remain range-bound if inflation stayed within the targets of the RBI, said Samantak Das, chief economist and head (research), JLL India.