HDFC Cuts Home Loan Rates

It has been a long time, almost 5 years, after which any bank in India has actually cut down on the home loan rates. HDFC bank has taken the lead in this regard. After Y V Reddy, the RBI Governor, did not cut the RBI rates and left the interest rate or loan rate markets open for the banks to play around in a clear competitive atmosphere, it gave a clear message to the banks that they have to decide and work on the market competition. In my previous articles, I've explained how banks play around with the interest rates and the floating rate customers get a hit.

HDFC has taken the lead in the race and has deducted the PLR or Prime Lending rate by 0.25% or 25 basis points. This cut in home loan rate is also significant because the banks in India do not, usually deduct the floating home loan rates, even if the RBI cuts the rates significantly. Another interesting part of this HDFC home loan rate cut is that it is for the Existing Customers, not for the new customers.

Usually, banks offer rate cuts or discounted interest rates to attract the new customers. The old customers end up with the dictated rule of “being at the mercy of the bank”.

This move from HDFC has come in good times and is expected to lead other loan offering banks to consider a rate cut as well. Mr. Reddy has struck the right note by leaving the field open to the banks to fight it out in the open market.

The initial PLR of 14% of HDFC bank will come down to 13.75% and since the home loan rate is offered at a discount, the floating rate for existing customers will come down by 25 basis points. It has, however, kept its floating rate for new customers unchanged at 10.25%.

This means all HDFC floating rate customers will see a cut in rates by a quarter of a percentage point. But the most important thing to note is that the dates on which this rate cut will be effective will vary from customer to customer. "The advantage of a cut in RPLR will accrue to all the existing floating rate customers over the next three months based on their respective reset dates," HDFC said in a release.

The other major players in the sector are ICICI Bank and SBI. ICICI Bank is still to take a decision on revising its housing loan rates. A top ICICI Bank official said its decisions on home loan rates were based on its cost of funds. "We will continue to watch the market closely." Till Thursday evening, SBI had not taken any decision on home loan rates. Hopefully, they should also get down on to reconsidering their floating home loan rates for existing customers and provide some respite to them for the first time in 5 years.

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