HDFC pits dual-rate loan against SBI’s ‘gimmick’

HDFC pits dual-rate loan against SBI’s ‘gimmick’
The Economic Times, December 02, 2009, Page 1

Scheme Similar To Public Lender’s Popular Home Loan Offer Unveiled Early This Year

Our Bureau MUMBAI

MORTGAGE giant HDFC is trying to beat the country’s largest lender State Bank of India at its own game. In a late communiqué on Tuesday, HDFC announced a dual-rate loan under which a borrower will be charged a fixed rate up to March ’12 and a floating rate thereafter.

In a 20-year loan of Rs 30 lakh, a borrower will pay a fixed rate of 8.25% up to March 2012 and then a floating rate that’s 500 basis points below the prime lending rate (PLR) — the institution’s benchmark rate.

Currently, the PLR is at 13.75%. The scheme is strikingly similar to what SBI launched earlier this year. Under the SBI scheme, the borrower pays a fixed rate of 8% for the first year and 8.5% for the second and third years. From the fourth year, the borrower can opt between a fixed and a floating rate. SBI’s floating rate is 275 basis points less than its benchmark rate, which is 11.75% according to its website.

When SBI launched its popular offer, it was vehemently criticised by HDFC on the grounds that such teaser rates to attract borrowers can cause widespread defaults when rates surge in later years. HDFC chairman Deepak Parekh went on to call the SBI offer “a gimmick”. But thanks to abundant liquidity and fierce competition, HDFC has been forced to come out with a similar scheme. However, it is learnt that the private lender will closely assess a borrower’s eligibility to serve a higher interest rate while disbursing a dual-rate loan.

HDFC joint MD Renu Sud Karnad said in a statement: “There is ample liquidity in the system. The banking system continues to park around Rs 1 trillion with RBI through reverse repo. We have been able to bring down our costs due to improved operational efficiency and a good quality portfolio. Based on current marginal cost of borrowing, a special festive offer is being made to new customers to reduce the cost for the home buyer.”

HDFC’s ‘special’ rate is available to all new customers who apply before January 31, 2010 and avail at least a part-disbursement before March 31, 2010. While the fixed rate will remain the same irrespective of the loan amount, the floating rate will vary with the amount. HDFC now has three slabs — loans up to Rs 30 lakh, between Rs 30 lakh and Rs 50 lakh, and Rs 50 lakh and above. The lender said the product will also be available to NRIs and PIOs.

According to the statement, loan approvals during the six-month period ended September 30, 2009 grew 18% to Rs 28,418 crore compared to Rs 24,180 crore in the same period of last year. Loan disbursements in the same period surged 26% to Rs 22,342 crore compared to Rs 17,788 crore in the same period of last year.

On a sequential quarter basis, the growth in individual loan approvals and disbursements for the second quarter of this financial year has been 26% and 24%, respectively, compared to the first quarter ended June 30, 2009.

“HDFC’s recovery performance continues to be very good. This is the nineteenth consecutive quarter end at which the non-performing loans have been lower than the corresponding quarter end in the previous year,” the statement said.