HDFC, the country’s largest mortgage player, today announced a 50 basis point reduction in its retail prime lending rate to 14 per cent for current and new customers.
For new customers who borrow up to Rs 30 lakh, the effective rate would work out to 9.5 per cent, and for those borrowing over Rs 30 lakh, the effective rate would be 10.5 per cent.
With the announcement of a reduction in the benchmark rate from March 25, all existing borrowers will see a reduction in their interest cost over the next three months. This is the second time in three months that HDFC has lowered its benchmark rate, with the cumulative reduction at 100 basis points.
The move is expected to help check a possible shift of borrowers from HDFC to public sector banks such as State Bank of India, which have frozen home loan rates for the first year at 8 per cent. Executives at the housing finance company said the cost of a 20-year loan from HDFC worked out to 9.5 per cent, against 9.75 per cent for SBI.
HDFC Vice-Chairman and Managing Director Keki Mistry, however, said the company had not seen a significant number of borrowers shifting to other lending institutions and added that there was a spurt in the number of enquiries for fresh loans.
“The cost of funds is falling steadily. We reduced deposit rates twice in March, and the cost of wholesale loans is around 8 per cent. So, it’s a move based on lower cost of funds and not for any other reason,” said Mistry.
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Most banks, including SBI and ICICI Bank, have lowered interest rates for new borrowers, while current customers , in most cases, have not significantly benefitted from a lower rate regime.
Following the Reserve Bank of India’s decision to reduce the repo and the reverse repo rate by 50 basis points earlier this month, HDFC had indicated that it would lower rates by the end of March.
“We have been able to bring down our costs due to improved operational efficiency and good quality portfolio... In the current environment, there is a time gap between the reduction in the marginal cost of funds and the portfolio cost," said HDFC Joint Managing Director Renu Sud Karnad.
Karnad said the marginal cost of borrowing had come down earlier this year and was passed on to new customers through a special limited period offer (rates beginning at 9.5 per cent). "We are now seeing a reduction in the costs on a portfolio level and as in the past, HDFC has ensured that the reduction in cost is passed on to existing customers by way of a reduction in RPLR,” she added.
The lending rate on existing loans to non-resident Indians has also been reduced.
HDFC had reduced deposit rates across maturities in the first week of March.