The Reserve Bank of India (RBI) is unhappy that banks have extended teaser rate schemes to grab a larger pie of the home loan market while old customers continue to pay high rates of interest.
“None of us know what are the financial products appropriate for us. In terms of its fairness and appropriateness, we are all financially excluded. That is why you wooed customers with 7 per cent interest rates on housing loans in 2004, and when interest rates went up, you were charging 13 per cent,” RBI Deputy Governor KC Chakrabarty said yesterday.
“You are charging new customers 8 per cent. This is unfair, not appropriate. When interest rates rose, you increased rates, and now that they have come down, you refuse to bring them down. We are not against teaser rates, but what we say is that there should be parity and both new and old customers should enjoy the benefits,” Chakrabarty said while addressing bankers yesterday.
After the country’s largest lender, State Bank of India (SBI), extended the teaser home loan rate scheme, HFDC announced that its similar scheme would be offered for another month. Earlier, following SBI’s move, LIC Housing Finance had announced a special home loan scheme at reduced rates.
At present, HDFC (along with HDFC Bank), SBI, ICICI Bank (along with ICICI Home Finance) and LIC Housing Finance dominate the domestic mortgage market, together accounting for 55 per cent of the total housing credit in India (as of March 31, 2010), according to a report by credit rating agency ICRA.
Under the scheme, HDFC is offering borrowers a fixed rate of 8.25 per cent till March 2011 and 9.25 per cent for the next 12 months. From April 2012, prevailing rates will apply.
Under the SBI Advantage Home Loan Scheme, which has been extended till September 30, one has to pay 8 per cent per annum for the first year and 9 per cent for second and third years, irrespective of the loan amount. From the fourth year, the rate will be linked to the base rate, and the effective rate comes to 9.25 per cent per annum for loans up to Rs 50 lakh and 9.75 per cent for loans above Rs 50 lakh at present rates.
Similarly, LIC Home Finance is offering floating interest rates for new customers on home loans up to Rs 1.50 crore at 8.75 per cent. Earlier, the special offer rates for loans between Rs 75 lakh and Rs 1.50 crore were priced at 9.75 per cent. It introduced two similar schemes with medium and long-term fixed rate components.
Credit growth in the Indian mortgage finance market increased to 13 per cent in 2009-10 from 10 per cent in the previous financial year. The increase was the result of several factors, including a more healthy operating environment, expectations of appreciation in property prices, and attractive interest rates offered by banks and housing finance companies, said the ICRA report.
“The choice is with customers, as at some point in time, the customer was paying as low as six-seven per cent. If cost of funds rises, naturally the rate will increase if the customer has opted for floating rates,” said D L Rawal, chairman and managing director, Dena Bank.
However, a further cut in home loan rates might not be viable for banks, with RBI yesterday raising repo and reverse repo rates by 25 basis points.
“We believe there is enough space for all. I think the rate is not the only deciding factor in home loan growth. As of now, we don’t see any scope for further reduction in rates, as there is only an upward bias in interest rate. We are growing reasonably at close to 20 per cent in the home loan segment,” said K R Kamath, chairman and managing director, Punjab National Bank.
