Expect another 50 bps rate cut this year: Keki Mistry

Hopes to reduce home loan rate in 'near future'; to be applicable for all customers

Housing Development Finance Corp (HDFC), the country’s largest mortgage lender, said its cost of funds have only come down incrementally and it will wait for significant reduction before passing the benefit to customers by cutting home loan rates.

Commenting on Wednesday’s rate cut announcement by the Reserve Bank of India (RBI), Keki Mistry, vice-chairman and chief executive officer of HDFC told Business Standard the timing could be a surprise but the recent Union Budget could have given the confidence to the central bank for easing the monetary policy further.

“The timing could have been one week or two week later but structurally, I thought post the Budget, RBI will have more confidence to cut rates even though the fiscal deficit is not according to the original target,” Mistry said.

RBI reduced the repo rate by another 25 basis points (bps) to 7.5 per cent — the second rate cut in 45 days. On January 15, RBI had reduced rates for the first time since May 2013.

“However, the quality of fiscal consolidation was crucial which will address inflation and some of the supply side issues. Therefore RBI is confident now as inflation is benign and probably will remain benign,” Mistry said while explaining the rationale.

He said another 50 bps rate cut is expected in 2015 as inflation is going to remain under control on the back of benign global crude oil prices.

“My original estimate at the beginning of the year was 75 to 100 bps of which 50 bps has already happened. So, I think another 50 bps rate cut we can expect in the remaining year. The only uncertainty for the inflation trajectory is oil. In the highly unlikely event of sharp spurt in oil prices, unless that happens, I think RBI will have the confidence,” he said.

For the mortgage lender to reduce home loan rates, cost of funds needs to come down sufficiently, Mistry said. HDFC has seen incremental cost of funds come down in the past few months, but the overall reduction is yet to take place.

“Incrementally we have seen some reduction in the cost of funds in the last few months. But it is on incremental funds and not on the existing balance sheet. The asset liability committee keeps a constant watch on the cost of funds and whenever we see a sufficient reduction in cost of funds, we will certainly pass on the benefit to the customers,” he said.

Mistry said the home financier’s interest rate reduction will be made effective for all the customers, and not just the new ones.

“It is very easy to cut rates for new loans and not the old ones but that is not fair for old customers. So we will it do for all customers,” he said.

When asked, when HDFC is expected to cut rates, Mistry said, “Hopefully in the near future.”

At present, HDFC’s home loan rate is 10.15 per cent, in line with other large banks  of the country.