Home loan players in India offering festival discounts

By Vipin Agnihotri

In my opinion, there is a lull in the home loan interest rate market in India with plenty of banks and housing finance companies announcing festive offers with lower interest rates for new borrowers.

It has come into the notice of The India Street that lots of other lenders are also going to follow suit in the coming days. The pivotal factor here is that even as there is some amount of easing, it is too early to predict a soft interest rate regime ahead, as large chunk of lending institutions will wait and watch for signals from the RBI’s credit policy in October before minimizing their prime lending rates.

It is worth mentioning in this regard that HDFC has cut its floating rate by a quarter percentage point (0.25 %) to 11 per cent, in addition to lowering the processing fee. On the other hand, Bank of Baroda has pruned interest rates by 50 basis points to 11 per cent for loans up to Rs 20 lakh and 11.25 per cent on loans above Rs 20 lakh. According to sources, Allahabad Bank too has made a one percentage cut to 12 per cent for 25-year loans.

If experts are to be believed, increasing home loan rates have severely impacted the housing sector, as their growth have dip to 26.6 per cent in 2006-07 from 29.1 per cent in 2005-06. In my opinion, home loan companies are looking to increase their business and have adopted this strategy for growth.

Point to be noted here is that the current round of rate reduction will be the first since November 2004. Interestingly, between then and March 2007, interest rates rose from 7 to 12 percent. Most of the experts feel that till property rates ease substantially any marginal reduction in interest rates will not have much impact.

I completely agree with the fact that lowering interest rates for the festive season is business promotion, hoping to bring in some spurt in activity but that may not happen. All in all, one can safely say that correction in property prices is the critical factor that will create enthusiasm to go in for home loans.

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