HDFC does not see rate hike impacting demand

Housing Development Finance Corporation (HDFC) does not see the recent 0.25 per cent hike in housing loan interest rates affecting the loan demand. The institution sees strong demand and the market can absorb another 1-2 per cent hike in rates.

"Home loan segment can face a rise of 1-2 per cent in interest rates as there is a huge shortage of 90 million houses at present," Renu Sud Karnad, executive director, HDFC, said at the sidelines of 9th Asian Real Estate Society conference today. She ruled out any negative impact on the company's business.

"At present, the housing loan rate ranges from 7.5 per cent to 8 per cent which is still very low as compared with 12-13 per cent a few years ago. The present rate is still very attractive and an increase to 8.5 to 9 per cent will be acceptable," Karnad said.

HDFC is also mulling on introducing schemes to change loan interest rates from floating to fixed. "Customers are asking for a switch to fixed rates but that calls for lot of procedural and other syndication changes. But, we would be introducing such a scheme with a higher conversion rate," she said. The institution has a provision of converting fixed loans to floating rates and charges 0.5 per cent for such conversion but not vice-versa.

HDFC has been recording a 29 per cent annual growth for last five years. It posted net income of Rs 506.8 crore at the end of the first quarter this year as against of Rs 409.9 crore in the same quarter last year.

In a bid to lure clients, HDFC is offering two options at differential rates, whereby it has a right to increase rates in the event of extreme volatility in market conditions, and the other at a slightly higher rate whereby the loan rate is fixed for the entire term.