Citi, ABN Amro, LIC Housing Finance to up home loan rates

Foreign banks "" Citibank and ABN Amro "" today said that interest rates on home loans are set to rise. Interest rates on home loans and some other loan product categories are set to rise, said Citigroup India chief executive Sanjay Nayar.

He established that the increase in risk weightage by the Reserve Bank of India (RBI) on retail loans and funds becoming more expensive, as the two key reasons for a proposed hike in lending rates. Meanwhile LIC Housing Finance has also announced its plans to hike its home loan rates across the board by 25-50 basis points.

ABN Amro is waiting to see a sustained trend in the inflation rate and the credit-offtake before hiking its rates. However, Romesh Sobti, executive vice president & country representative ABN Amro, did say "if we do decide to change our rates, the home loan rates will be affected first."

He was quick to add that this would pertain only to new customers as existing customers have been promised a fixed rate loan of 6.5 per cent for the first two years.

Both the foreign banks do not intend to hike their respective prime lending rates (PLRs). "The PLR is not indicative of the effective lending rates as a lot of lending is down at sub-PLR levels," said Abheek Barara, chief economist, ABN Amro.

Neither Citibank nor ABN Amro propose to increase home loan rates for their existing customers. "We will change the rates in select segments and this includes home loans, which are expected to go up by 25-50 basis points," said Nayar.

ICICI Bank has already raised interest rate on home loans by 0.50-0.75 per cent while the housing major, HDFC plans a rise in its lending rates by 50 basis points.

LIC Housing Finance sees long-term home loans rising more than 50 basis points, as the company's director and chief executive A K Dasgupta told Business Standard. "Considering the cost of funds are increasing a lot by as much as 75 basis points upwards, it's inevitable that a hike in home loan rates is on the cards," he added.

Nayar pointed out that while bonds yields have moved up by as much as 2 per cent, he does not see bank rates rising as much though they are today quite lagged behind the bond rates.