HDFC cuts retail PLR

HDFC cuts retail PLR
The Financial Express, March 25, 2009, P1

Banking Bureau, Mumbai

India’s largest home loan financer, Housing Development Finance Corporation (HDFC), on Tuesday slashed by 50 basis points its prime lending rate for retail borrowers. The move will benefit all existing HDFC customers who borrowed at floating rates.

HDFC has a share of about 40% of new home loans approved every year. This is the second time in three months that it has reduced its retail prime lending rate (RPLR). The actual benefit for each customer will, of course, depend on the rate at which the loans were contracted. “Borrowers who will benefit most from this reduction are those who contracted floaters in the range of 11-12 %,’’ said a bank spokesperson.

The reduction will fuel competition in the housing loan market. India’s largest bank, State Bank of India, has announced a scheme under which a customer can borrow at a fixed 8% for the first year and a re-priced 10.25% from the second year. The bank’s loan book has expanded by Rs 800 crore since the middle of December 2008.

“We are now seeing a reduction in the costs on a portfolio level and, as in the past, HDFC has ensured that the reduction in cost is passed on to existing customers by way of a reduction in RPLR,” HDFC joint MD Renu Sud Karnad said. The rate cut will accrue to customers over the next three months based on their reset dates.

The lender has seen its costs fall owing to improved operational efficiencies and a good quality portfolio, Karnad said.

“The measures taken by the government, drop in interest rates, correction in property prices and developers introducing affordable housing by resizing the area has resulted in an increased interest from first-time house buyers,” she added.

Currently, the housing finance company gives Rs 30 lakh at 9.5%, while for loans above that figure it charges 10.5%. HDFC Bank lends for a maximum tenure of 20 years and almost 90-95% of its incremental loans are in the floating rate category.

HDFC reduced its deposit rates across maturities in the first week of March. On an incremental basis, retail deposits for the first nine months—April to Dec—formed 55% of HDFC’s funding requirements.

Among other banks, Canara Bank has also announced home loans up to Rs 30 lakh at 8.25% for the first 12 months, 9.25% for the next 48 months and BPLR minus 2.50% subject to a minimum of 10.00% thereafter.