Cost of funds helps decide interest rates

Cost of funds helps decide interest rates
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First Published: Sun, Feb 03 2008. 11 44 PM IST

Updated: Sun, Feb 03 2008. 11 44 PM IST
To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A will appear every other Monday.
I have come to know from a news channel that Housing Development Finance Corp. (HDFC) has lowered its lending rate by 25 basis points for existing customers. Though my loan is not from your organization, I would like to know if other players in the industry would follow this rate cut as well.
Interest rates are the function of a company’s cost of funds, which differ from organization to organization. For the past six to nine months, there has been good liquidity in the system. We have seen our cost of funds come down steadily because of improved operational efficiency and good quality portfolio.
Since HDFC has always believed in maintaining a pre-determined spread, we decided to pass on the benefit to our customers.
For other institutions, the decision to reduce interest rate will be based on their respective cost of funds and other parameters.
My wife and I are both software professionals currently working in the UK. We are looking for a home in India. Based on our present salary, we have been approved a loan of Rs45 lakh, the cheque for which I have not collected yet. We plan to come back to India in March. Will this have any effect on my loan? Please advise.
When you return to India from abroad, your loan would change from non-resident Indian to resident Indian status.
Thus, the mode of repayment will also change from NRE/NRO account, that is, non-resident (external) rupee account/ordinary non-resident rupee account, to your local bank account.
It would be advisable that you meet with your loan provider as we have seen that whenever a person moves back to India, after working overseas, their income levels change.
Hence, it is advisable to share your latest income details with your loan provider so they can work out a revised repayment schedule if necessary.
Renu Sud Karnad is joint managing director, HDFC.
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First Published: Sun, Feb 03 2008. 11 44 PM IST