HDFC ups home loan rate

Housing Development Finance Corp (HDFC) has raised interest rates on home loans for existing and new borrowers. Floating rates will go up by 75 basis points while interest rates for customers seeking fixed loans have been increased by 100 basis points from 11 per cent to 12 per cent with effect from March 1, 2007.

HDFC's revised prime lending rate (PLR) will be 13.5 per cent against 12.75 per cent. One basis point is one-hundredth of a percentage point.

"The rates reflect the increase in our cost of funds," said the statement sent by the company. Housing Development Finance Corp raised its rates as the cost of borrowing funds and attracting deposits rose after the central bank raised rates to contain inflation that accelerated to the fastest pace in more than two years last month.

The Mumbai-based lender followed the State Bank of India, ICICI Bank and Punjab National Bank in raising rates after the central bank on February 13 told banks to set aside more cash to cover their deposits.

The Reserve Bank of India told banks to set aside 6 per cent of their funds as reserves from March 3. The central bank had in December announced an increase in the reserve ratio to 5.5 per cent from 5 per cent.

The RBI on January 31 also raised its key overnight rate by quarter of a point to a four-year high of 7.5 percent to contain inflation that accelerated to a more than two-year high of 6.73 per cent last month.

Inflation slowed to 6.05 per cent in the week ended February 17. The central bank also told banks to double provisions for lending to real estate purchases, credit cards, and personal loans and investments, to cool asset prices and curb defaults.

In January this year, HDFC had hiked its PLR by 50 bps but had left its pure fixed lending rates untouched at 11 per cent. The floating rate started from 9.5 per cent till 10.5 per cent depending on the loan amount. HDFC Bank, which is 22 per cent owned by HDFC on Feb. 12 raised its lending rates by one percentage point to 14 per cent.

HDFC's rates vary according to loan size and not the tenure of the loan. Loans below Rs 5 lakh carry interest at the rate of 10.5 per cent while loans above Rs 10 lakh carry an interest rate of 10.25 per cent.

HDFC has also raised its deposit rates under a privilege scheme where it offers 9.55 per cent on 30-month deposits to senior citizens. For other individuals, the rate of return is 9.3 per cent.

HDFC's loan approvals up to December 2006 is Rs 1,35,100 crore while loan disbursements was Rs 1,10,600 crore.