HDFC cuts new loan rates by 25-50 bps

HDFC cuts new loan rates by 25-50 bps
The Economic Times, July 22, 2009, Page 1

Loans Up To Rs 15 Lakh To Be Available At 8.75%

Our Bureau MUMBAI

THE country’s largest home finance company, HDFC, has cut lending rates for new customers by 25-50 basis points. The financial institution has restructured its loan baskets to create a new product where loans up to Rs 15 lakh are available at 8.75% as against 9.25% earlier.

As per the revised structure, loans between Rs 15 lakh and Rs 30 lakh are now available at 9% (against 9.25% earlier) and loans above Rs 30 lakh are priced at Rs 9.5% (9.75%). Following the reduction, the EMI on a Rs 1-lakh loan with a 20-year tenure will shrink to Rs 884.

HDFC’s prime lending rate (PLR) remains unchanged at 13.75%, which means existing borrowers will not see any change in EMIs or cost of fund. A 50-basis point cut in interest rate lowers EMI by around Rs 34 for a Rs 1-lakh loan.

In the present round of cuts, HDFC has reduced rates for new borrowers under its floating rate scheme by widening the spread between the PLR and loan rate.

The rate cut, surprisingly sans wide publicity, comes at a time when most bank chiefs have predicted higher rates due to a bloated government borrowing programme.

HDFC officials were not available for comment. In the past, whenever HDFC cut rates for new customers, company officials justified it by saying the institution was merely passing on a reduction in incremental cost of funds. According to them, the PLR is reduced (and rates for new as well as old borrowers) only when there is a sustained fall in interest rates in the system.

Since December 2008, HDFC’s prime lending rate has fallen by 125 basis points. But the lending rate has fallen more steeply for new borrowers.

Earlier this month, India’s largest bank SBI also revised its home loan scheme for new customers. New borrowers would get loans at 8% for the first year and 9% for the second and third years. From the fourth year, the interest rate would be linked to the bank’s prime lending rate.

There are rumours of HDFC planning a new loan product, which may be announced after the company’s board meeting and AGM on Wednesday. The AGM will also approve Deepak Parekh’s appointment as chairman until end-December ’09. With Mr Parekh deciding to quit as executive chairman, this is likely to be the last AGM with him as the chief executive.