Housing Development Finance Corporation (HDFC), the largest mortgage lender in the country with nearly a third of the market share, is set to reduce its lending rates by 25 basis points (bps) early next week, people familiar with the development told Business Standard on Friday.
The move is likely to benefit about 1.1 million HDFC customers, reducing their equated monthly instalment (EMI) burden for the first time in three years.
For every 25-bps cut in lending rate, the EMI will reduce by Rs 17 per lakh for a loan taken for 20 years.
“We will take a decision early next week, probably on Monday or Tuesday,” Keki Mistry, vice-chairman and chief executive, said. “The extent of the cut will be decided after we assess our cost of funds.”
At present, the housing finance company charges 10.5 per cent for loans up to Rs 30 lakh, 10.75 per cent for loans between Rs 30 lakh and Rs 75 lakh, and 11 per cent for loans above Rs 75 lakh. However, these rates include a 25 basis points rebate that HDFC is offering now as part of a special offer.
HDFC’s prime lending rate is at 16.5 per cent. The lender had increased the rate by 275 bps in the past three years, with the last raise happening in August 2011. During this period, the Reserve Bank of India (RBI) had raised repo rate by 375 bps.
Other housing finance companies are also expected to follow with lending rate cuts.
“With banks reducing their base rates, our cost of funds is expected to come down. Once that happens, we would pass on the benefit to our customers,” said a senior executive of LIC Housing Finance, the mortgage lending arm of India’s largest insurer Life Insurance Corporation of India.
National Housing Bank, the regulator for housing finance companies, may also bring down its refinance rate in a few days, prompting most mortgage lenders to revise lending rates sooner than later, sources said.
On Tuesday, RBI cut the repo rate by 50 bps, for the first time in three years, to boost the slowing growth in the domestic economy. Following the central bank’s move, ICICI Bank, Punjab National Bank, IDBI Bank and Bank of Maharashtra announced 10-25 bps reduction in their base rates.
India’s largest commercial bank State Bank of India, however, is yet to pare its base rate. But senior executives of the bank have indicated the lender would cut rates across segments by 25-50 bps in coming weeks.