ICICI Home Finance's decision to slash the industry rate on floating rate home loans from 12 per cent to 11.5 per cent is likely to trigger off a rate war.
State Bank of India is also likely to revise its home loan rate shortly. Sources said it can be done without reducing its prime lending rate (PLR), as the SBI can always offer home loans at sub-PLR rates.
Dewan Housing Finance is also exploring the introduction of a floating rate product. "We have been planning to introduce a variable rate mortgage (VRM) product for quite some time. However, we are waiting for banks to react to the Reserve Bank of India's reduction in the bank rate by revising their PLR downward," said Dewan Housing assistant general manager - marketing, Mohan Ananthakrishnan.
Dewan Housing does not anticipate a huge demand for floating rate products, as there is not much of a price differential. Yet, "we would like to introduce it if everyone else has done so", Ananthakrishnan said.
Majors such as Housing Development Finance Corporation (HDFC) and LIC Housing Finance see no cause for reaction. LIC Housing does not offer such a product, and does not propose to do so in the immediate future. The company director & CEO, Kranti Sinha, said the low interest rates will not remain at the current level for long. "As and when they rise, this segment will be the first to default," said Sinha.
There has been an increasing trend of people applying for floating rate home loans, as they do not anticipate interest rates to increase. Since HDFC launched the adjustable rate home loan product two-and-a-half years back, around 18 per cent of its outstanding loans for the year are based on floating rate assets.
