Though the Reserve Bank of India (RBI) decided to reduce the risk weight for home loans between Rs 20 lakh and Rs 30 lakh to 50 per cent, the possible benefit for banks seems to be more than neutralised by 75 basis point rise in cash reserve ratio (CRR) and increase in the cost of resources, which is linked to yields on government bonds and competition, bankers said.
CRR is the share of deposits that has to be kept with RBI without getting any interest on them. Higher the CRR, lesser is is the sum available with banks to deploy for lending operations.
On Wednesday, Union Bank of India announced a 25-100 basis point reduction in interest rate on home loans up to Rs 30 lakh.
A senior State Bank of India official dealing with retail assets said with high inflation, rising cost of funds and tightening of CRR, there is very little room for tinkering with home loan rates.
Last week, SBI Chairman O P Bhatt had indicated that interest rates both on lending and deposit side are expected to be stable in next the three-five months.
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Supporting the views expressed by public sector bank executives, senior Housing Development Finance (HDFC) official said, "The relaxation in risk weight could some benefit to us. But, we depend on banks to mobilise resources through various financial instruments and loans and they are charging higher rates. So there is no scope for easing the rates at least in the short term."
Hinting at stable rate regime for now, ICICI Bank CEO K V Kamath today said in Delhi that there are no indications from the market to signal a change in interest rates at the moment.
A senior IDBI Bank official said it (Union Bank decision) came as a surprise and his bank is not revising the interest rates on home loans for now. A hike in CRR will leave less resources with the bank, indirectly increasing the cost of funds.
An official from Bank of India said, "We reviewed the implications of RBI policy decision to reduce the risk weight for loans between Rs 20 lakh and Rs 30 lakh to 50 per cent. It is not going to make much difference in the form of benefit to be passed on to borrowers."
The average size of home loans contracted by public sector banks is between Rs 7.5 lakh and Rs 10 lakh. This is well below the old ceiling of Rs 20 lakh (for 50 per cent risk weight). Hence, the relaxation is not expected to make a major difference in the demand pattern, the official added.