Home loan rates may rise as RBI tightens norms

Home loan rates may rise as RBI tightens norms

Mumbai: Bankers indicated that home loan rates may rise, though not immediately, as the Reserve Bank of India (RBI) tightened lending requirements for housing loans. The move also sparked fears that housing unit sales may get hit, sending prices of realty stocks tumbling.

In its quarterly credit policy review on Tuesday, the central bank has capped housing loans at 80% of the property value, as it seeks to check rising home prices.

RBI also asked banks to set aside more money against loans on teaser rates, where buyers get discounted interest rates in the initial years, and loans above 75 lakh. These norms will be applicable to existing loan portfolios as well.

The risk weight on such loans has been increased to 125% of the loan value. RBI has also increased the standard asset provisioning (or the amount to be set aside against all assets) on teaser loans to 2% from 0.4%, a move which will marginally increase credit cost.

Still, there won’t be an immediate impact on banks and housing finance companies, industry executives said.

“These will have very little implication as far as we are concerned," said Keki Mistry, vice-chairman and managing director of Housing Development Finance Corp. Ltd, the largest mortgage lender in the country. He said HDFC’s provisions are in excess of what is required under current rules and will be more than sufficient to meet the additional provision requirements," if the National Housing Bank, or NHB, changes rules.

Housing finance companies such as HDFC and LIC Housing Finance Ltd are regulated by NHB. If NHB follows the new RBI norms, as it typically does, the impact on housing finance companies “will be relatively higher with respect to credit cost", a note put out by Edelweiss Securities Ltd said.

Chanda Kochhar, managing director of ICICI Bank Ltd, told reporters on the sidelines of a conference that there was an “upward bias on interest rates".

The proportion of loans above 75 lakh is less than 10% of HDFC’s loan book, while 27% of its loans come under a dual rate scheme, the Edelweiss Securities note said.

For other big mortgage lenders, this ratio is similar or even smaller, the note added. For LIC Housing Finance, the proportion of loans under multiple rate schemes is 27%, while for State Bank of India and ICICI Bank Ltd, it is around 2% of overall advances, it said.

“The stringent measures (could be) also because of overheating," said R.R. Nair, director and CEO at LIC Housing Finance. “The immediate provocation seems to be 10-90 scheme," where homebuyers pay only 10% of the property value upfront. Both analysts and real estate industry executives had differing views about the impact on real estate demand.

“Whether or not this will have an impact, it will be difficult to get a true picture for another six-eight weeks as this is the festive season," said Anuj Puri, country head, Jones Lang LaSalle Meghraj (JLLM), a real estate consultancy.

Realty sales have been slowing in some markets where prices have shot past the pre-September 2008 crisis levels. For instance, home registrations for September 2010 were 15,182 in Mumbai, the lowest number in absolute term since April 2009, a Prabhudas Lilladher Pvt. Ltd report said.

“These measures could have a marginal impact on demand," said Pujit Aggarwal, CEO and managing director of Orbit Corp. Ltd. “People may defer their decisions by a quarter or two. But eventually a house buyer is a house buyer and will buy."

Parsvnath Developers Ltd and Housing Development Infrastructure Ltd said in emailed statements that there would be no impact on demand. However, investors weren’t buying this argument.

The Bombay Stock Exchange’s realty index fell 2.58% on a day when the broader market was marginally down. Indiabulls Real Estate Ltd’s scrip fell 5.03% to 189.65. Unitech Ltd slid 3.31% to 86.25 while DLF Ltd fell 3.28% to 349.10.


Madhurima Nandy and Ashwin Ramarathinam contributed to this story.