Home loan firms in no mood to cut rates

In the last few weeks Public sector banks have announced of lowering home loan rates after a slew of measures by the Reserve Bank of India (RBI), but housing financial companies (HFCs) are yet to take decision on the issue.

According to HFCs the cost of funds is showing no signs of reduction since banks are still charging around 12-13 per cent, which is higher than the average lending rate of HFCs.

For instance, HDFC and LIC Housing Finance Company, the two big house financing companies together account for over 70 per cent share of the HFC market and charge around 11.5 per cent, whereas home loans from Dewan Housing Finance Company costs between 12 and 14 per cent.

“Our interest rates are a function of our cost of funds. We have always passed on the benefit of lower cost of funds to our customers and we will continue to do the same. As of now, we have not seen interest rates coming down even though RBI has taken steps to provide liquidity. The issue today is not of liquidity, but of credit and until it is made available, it would be difficult for anyone to bring down interest rates,” said HDFC Joint Managing Director Renu Sud Karnad.

“With banks cutting home loan rates, there is an expectation of rate cut in the housing sector, but our cost of funds still remains high. In the foreseeable future, there is no scope for reduction in lending rates,” added LIC Housing Finance Chief Executive Officer R R Nair.

HFCs sources said the high cost of funds has affected their ability to compete with public sector banks because the weighted average cost, on an average, is 300 basis points higher. Nair added on the contrary, lending rates are 50-100 basis points higher than those of public sector banks.

“We are lending to NBFCs at about 13 per cent, which will not come down as we consider it as a high-risk sector,” said an executive of a large public sector bank.

As per the industry approximate calculation, HFCs comprise over 40 per cent of the Rs 1,20,000-crore housing finance market. According to executives of these companies said HFCs will now account for 15 per cent of an increase in the pie as against 25 per cent in 2007-08.

Recently the National Housing Bank (NHB) had even raised the refinance rate to up to 12 per cent from around 9 per cent which also did not help the cause of HFCs.

In the current circumstances the bigger players, backed by strong background, are still finding difficulty to sustain the higher cost of funds, thus their smaller peers are finding it even more tough to operate.

“The recent measures by the regulators have not translated into the availability of credit from banks. We operate in the lower-income group, with an average loan ticket size of Rs 6-6.50 lakh with a very low margin. So, if things do not improve soon, we will be left with no choice, but to increase lending rates,” said Dewan Housing Finance Vice-Chairman and Managing Director Kapil Wadhawan.

Wadhawan confessed that in the current year, the distribution growth has slowed down compared as compared to the last year.

“The real estate market is reeling. So, the demand is bound to come down. But, we hope to grow at around 18-20 per cent in incremental disbursement this year compared with over 25 per cent growth last year,” he added.