You are here: Home » Finance » News » Banks
Business Standard

Lending rates cut leads to balance transfers in home loan market: ICRA

SBI reduced the lending rates for home loans by 50 bps to 8.6% for floating rate loans

IANS  |  Kolkata 

Photo: Shutterstock

The lending rates cut, which effectively set off a price war in the Rs 13 trillion market, could lead to increased competition and balance transfers in the highly competitive housing loan market, rating agency said in its report.

With a bulk infusion of fresh liquidity arising out from the demonetisation, State Bank of India reduced the lending rates for home loans by 50 bps to 8.6 per cent (for floating rate loans), various lenders followed suit.

Key lenders that together account for over 65 per cent of the market, now offer in the range of 8.5-8.7 per cent after the reduction, compared with their earlier rates of 9.1-9.3 per cent, the agency said.

"While the reduced rates are applicable for new loans and loans linked to Marginal Cost of Funds based Lending Rate (MCLR), this could lead to increased competition and balance transfers in the highly competitive Indian housing loan market, especially the prime salaried segment," the report said.

Loans linked to for banks were less than 15 per cent of the overall book, it said.

The report said lenders might also try to retain borrowers by giving them the option to shift to a lower interest rate by paying a fee.

Housing finance companies (HFCs) would also benefit from the reduction in by various banks and should be able to re-price a portion of their liabilities.

However, the report said the smaller HFCs are likely to get impacted more on account of their relatively higher operating cost ratios.

"Given that only a few HFCs would be able to match the being offered by banks, this could lead to some balance transfers from HFCs to banks and hence an increase in banking sector market share," the report added.

RECOMMENDED FOR YOU

Lending rates cut leads to balance transfers in home loan market: ICRA

SBI reduced the lending rates for home loans by 50 bps to 8.6% for floating rate loans

SBI reduced the lending rates for home loans by 50 bps to 8.6% for floating rate loans
The lending rates cut, which effectively set off a price war in the Rs 13 trillion market, could lead to increased competition and balance transfers in the highly competitive housing loan market, rating agency said in its report.

With a bulk infusion of fresh liquidity arising out from the demonetisation, State Bank of India reduced the lending rates for home loans by 50 bps to 8.6 per cent (for floating rate loans), various lenders followed suit.

Key lenders that together account for over 65 per cent of the market, now offer in the range of 8.5-8.7 per cent after the reduction, compared with their earlier rates of 9.1-9.3 per cent, the agency said.

"While the reduced rates are applicable for new loans and loans linked to Marginal Cost of Funds based Lending Rate (MCLR), this could lead to increased competition and balance transfers in the highly competitive Indian housing loan market, especially the prime salaried segment," the report said.

Loans linked to for banks were less than 15 per cent of the overall book, it said.

The report said lenders might also try to retain borrowers by giving them the option to shift to a lower interest rate by paying a fee.

Housing finance companies (HFCs) would also benefit from the reduction in by various banks and should be able to re-price a portion of their liabilities.

However, the report said the smaller HFCs are likely to get impacted more on account of their relatively higher operating cost ratios.

"Given that only a few HFCs would be able to match the being offered by banks, this could lead to some balance transfers from HFCs to banks and hence an increase in banking sector market share," the report added.
image
Business Standard
177 22

Lending rates cut leads to balance transfers in home loan market: ICRA

SBI reduced the lending rates for home loans by 50 bps to 8.6% for floating rate loans

The lending rates cut, which effectively set off a price war in the Rs 13 trillion market, could lead to increased competition and balance transfers in the highly competitive housing loan market, rating agency said in its report.

With a bulk infusion of fresh liquidity arising out from the demonetisation, State Bank of India reduced the lending rates for home loans by 50 bps to 8.6 per cent (for floating rate loans), various lenders followed suit.

Key lenders that together account for over 65 per cent of the market, now offer in the range of 8.5-8.7 per cent after the reduction, compared with their earlier rates of 9.1-9.3 per cent, the agency said.

"While the reduced rates are applicable for new loans and loans linked to Marginal Cost of Funds based Lending Rate (MCLR), this could lead to increased competition and balance transfers in the highly competitive Indian housing loan market, especially the prime salaried segment," the report said.

Loans linked to for banks were less than 15 per cent of the overall book, it said.

The report said lenders might also try to retain borrowers by giving them the option to shift to a lower interest rate by paying a fee.

Housing finance companies (HFCs) would also benefit from the reduction in by various banks and should be able to re-price a portion of their liabilities.

However, the report said the smaller HFCs are likely to get impacted more on account of their relatively higher operating cost ratios.

"Given that only a few HFCs would be able to match the being offered by banks, this could lead to some balance transfers from HFCs to banks and hence an increase in banking sector market share," the report added.

image
Business Standard
177 22