Home Loans are unlikely to turn expensive despite the increase in cash reserve ratio (CRR). The Reserve Bank of India (RBI) has raised CRR by 50 basis points to 7%, but a large section of bankers told that they do not expect lending rates, including home loan rates, to go up. At the same time, bankers are unlikely to lower the home loans rates.

This comes as a bad news for a large number of borrowers who had expected interest rates to come down post-credit policy. Earlier,chairman of HDFC said HDFC would consider a lower lending rate if RBI does not hike CRR. On Tuesday following the RBI action, the thoughts of lowering lending rates have now been shelved. However, there is no immediate pressure to raise lending rates either.

Over the past two years, interest rates on home loans had increased by 400 basis points from 7.5-8% to 11.5-12% on floating rate home loans. Borrowers were worried that a CRR hike may result in an increase in their monthly outgo to their lending bank.

Whether HFCs will increase rates will depend on the refinance rates offered by banks. It will depend on the absorptive capacity that banks have, before passing on the costs to HFCs. The softening in interest rates that was expected will now be deferred. As of now, most of the Banks & HFCs will not tinker with refinance rates. The policy is primarily targeted at controlling liquidity. As of now, the liquidity in the system is very comfortable. However, Banking analyst say they do not expect a bank to hike rates if it is comfortable with the liquidity in the system.

The policy does not signal a revision in rate upwards or downwards as of now.


Source: Economic Times-01/08/07
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  • It has to come down !!!

    After a terrible slash in home loan demand Indian banks have started slashing the interest rates. SBI, BoB and many more have already done this and the rest have to follow the suit in order to survive competition…!!!
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