The country's largest home loan player HDFC today said that it may have to raise lending rates further if the Reserve Bank of India (RBI) increases key policy rates in the forthcoming monetary policy review on July 29.
But HDFC Chairman Deepak Parekh is hopeful that higher rates will not deter individuals from borrowing to finance home purchase. "The overall demand for home loans is unlikely to display any slowdown, and the borrowers can still afford another 100-200 basis point hike in loan rates," he said on the sidelines of the company's annual general meeting. "Higher interest rates are always painful. About 87 per cent of our borrowers are on floating rate," he said while advising borrowers to opt for fixed rate loans.
HDFC has been arguing that the effective borrowing cost is a little over 5 per cent if the tax benefits are included. The mortgage player has seen its sanctions grow 30 per cent during the first quarter to reach nearly Rs 10,000 crore, while disbursals were 28 per cent higher at 7,400 crore. It raised lending rates from July 1.
"We expect RBI to raise interst rates considering the prevailing condition. As the cost of funds will go up, we may have to increase the rates accordingly," Parekh said. Many bankers belive that the central bank, which has already raised the repo rate by 75 basis poitns and the cash reserve ratio by 125 basis points during the current financial year will resort to more monetary tightening with inflation estimated at a 13-year high of 11.89 per cent at the end of June.
The corporation said the average size of individual loans went up to Rs 14 lakhs during 2007-08 as income levels went up and individuals could buy more expensive houses.
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While projecting a growth of 25-30 per cent in lending business for the financial year 2008-09, Parekh pointed out that the overall growth in home loan segment is unlikely to be affected by soaring interest rates, as there is a spurt in demand among the residents based in smaller towns.
Despite rising costs, Parekh said HDFC has not witnessed any default from the developers, although the company is now more cautious.