HFCs plan to cut rates on sub-Rs 20 lakh loans

New home loan borrowers, with a loan size of less than Rs 20 lakh, may get cheaper loans from institutional lenders from January 1, 2009.

Following the leaders, second-rung HFCs like Dewan Housing Finance (DHFL), GIC Housing Finance (GICHF), DHFL Vysya Housing Finance, among others are likely to reduce interest rates by 1-1.5 percentage points compared to their existing rates for loans up to Rs 20 lakh. These lenders also plan to reduce rates for existing borrowers, albeit by a lesser extent.

GICHF, with a home loan portfolio of Rs 2,800 crore, has decided to reduce interest rates by 1-1.5 percentage points for fresh borrowers. Accordingly, for loans below Rs 20 lakh, it will charge 10.25 per cent per annum for 5-15 years and 10.5 per cent per annum for over 15 years.

DHFL, with a home loan portfolio of around Rs 5,000 crore, is yet to finalise its plan. Going by information trickling in, it may offer special rates, too, for the both sub-Rs 20 lakh and sub-Rs 5 lakh loan categories. Its subsidiary, DHFL Vysya Housing Finance, also plans to introduce special rates for new home loan takers.

These players have taken the cue from public sector banks and the market leader Housing Development Finance Corporation (HDFC). Following the government’s diktat, public sector banks have created a concession rate of 9.25 per cent for home loans below Rs 20 lakh and 8.5 per cent for loans less than Rs 5 lakh. HDFC has announced a floating interest rate of 10.25 per cent for loans up to Rs 20 lakh and 11.25 per cent for loans above Rs 20 lakh.

National Housing Bank (NHB), which offers refinance support to HFCs, has introduced a special Rs 4,000 crore refinance facility at 8 per cent annual rate. It has also announced a Rs 2,000-crore refinance support for loans against rural housing projects. “As we will get refinance from NHB at easy terms, we have decided to pass on the benefit to new customers from January 1,” said M Sivaraman, managing director, GICHF.

Industry players, however, believe that NHB facility would be available only against fresh lending. So, the benefit of the soft rates will be limited to fresh loans. GICHF, for instance, will reduce its interest rates for existing customers by 0.25 percentage points.

According to DHFL Vysya Housing Finance managing director R Nambirajan, the company will cut its rates by 0.5 percentage points for existing borrowers across the spectrum. “Besides offering the special refinance scheme, NHB has reduced its normal refinance rates too. Both the moves will help lowering interest rates,” Nambirajan said.

“As we have reduced rates, we also expect HFCs to reduce rates and pass on the benefits to end-customers,” said S Sridhar, CMD, NHB.