Mumbai: India’s biggest mortgage lenderHousing Development Finance Corp. Ltd (HDFC) on Friday reduced interest on floating rate home loans of Rs20 lakh and above by 50 basis points. For loans up to Rs20 lakh, the rate reduction has been 150 basis points, effective 22 December. One basis point is one-hundredth of a percentage point.
Bold step: HDFC chairman Deepak Parekh. The bank has also reduced its deposit rates by 50 basis points across all maturities. Santosh Verma / Bloomberg
Following the rate cut, interest on floating rate home loans up to Rs20 lakh will be 10.25% and above Rs20 lakh, 11.25%. Until now, HDFC used to offer floating rate home loans at 11.75% irrespective of their size.
HDFC has cut its floating rate loan by paring its benchmark rate. All floating rate home loans are linked to the benchmark rate. As a result of the cut in the benchmark rate, all existing as well as new borrowers will get the benefit. The bank’s fixed housing loan rate, however, stands unchanged at 14%. According to an HDFC official, 93% of its customers have opted for floating rate.
HDFC, which accounts for about 40% of the housing loans in India, has also reduced its deposit rates by 50 basis points across all maturities.
“The recent cuts in policy rates by RBI has created adequate liquidity in the banking system which had a positive impact on the cost of funds. The corporation has always maintained a pre-determined spread, and believes in passing on the benefits to the end users,” an HDFC statement said.
ICICI Bank Ltd, which competes with HDFC, had earlier this month reduced its floating loan rates by 150 basis points to 11.50% for fresh loans of up to Rs 20 lakh.
Public sector banks are now offering home loans up to Rs5 lakh at 8.5% and Rs5 lakh- Rs20 lakh loans at 9.25%. The rates will not be changed for next five years even if the home loan rates go up, but if the rates come down, the benefit will be passed on to the customers. All new home loans taken between now and 30 June , will get the benefit. Public sector banks have also waived the processing fees and prepayment penalties for new home loans and offered free insurance as part of the package. However, public sector banks account for only 20% of the market.