Buyers in a fix as banks refuse to cut home loan rates

The festive mood has been a little subdued in the realty market this season as home buyers are kept waiting and watching for a cut in loan rates, while bankers citing high deposit rates have decided not to tinker with the rates for now.

With rising interest costs and high property prices, buyers were pinning their hopes on loan rate cuts to buy homes this festive season. For developers, who are staring at a demand slowdown, unchanged rates meant they could not prop up the sales in a traditionally busy season.

“We will maintain a status quo (on home loan rates). I don’t find any scope to reduce my lending rates unless deposit rates come down,” Canara Bank Chairman and Managing Director A C Mahajan said.

High interest rates have already dented property demand in the past few quarters and expectations were that rates would soften after the Reserve Bank of India (RBI) announced a 100-basis point cut in the repo rate to 8 per cent and another 250 basis points cut in the Cash Reserve Ratio (CRR) to 6.50 per cent. However, the country’s largest bank, State Bank of India, on Monday said it would keep its lending rates, including home loan rates, unaltered.

Business Standard had reported that ICICI Bank, the country’s largest private sector bank, had hiked housing loan rates for new borrowers by 100 basis points. Small banks, like Karnataka Bank and Vijaya Bank, have also indicated that lending rates are likely to stabilise at the current levels.

Karnataka Bank Chairman and Chief Executive Officer Ananthakrishna said the bank would not be able to reduce its lending rates. “We have not increased interest rates on home loan when rates went up, so there is no question of a rate cut on that front,” he said.

“Banks may not have the ability to cut lending rates. I think interest rates should be stable at this level, unless deposit rates come down,” Vijaya Bank Executive Director S C Kalia said.

But developers said this reasoning by banks was disappointing. “With inflation coming down and liquidity there, there is no reason why interest rates should not come down. The reason why interest rates went up, the situation has now reversed. You have to be dynamic in this environment,” Confederation of Real Estate Developers’ Associations of India Chairman Kumar Gera said.

Brokerage Religare, in a recent research report to its clients, noted, “Equated monthly instalment (EMI) payments for existing home loan borrowers have escalated, which could result in loan defaults. Further, bankers have decreased the loan-to-property value from 85 per cent to 65-80 per cent, which means higher down-payments for buyers. All these factors have served to dampen the realty demand.”