Icici Home Unwraps Adjustable Rate Loan

ICICI Home Finance, the housing finance arm of ICICI, today introduced an adjustable rate home loan (ARHL) product and undercut interest rate by 50 basis points.

The institution has pegged the rate at 11.50 per cent for all loans up to 20-year maturity. Housing loan major Housing Development Finance Corporation Ltd (HDFC) and State Bank of India (SBI) offer a similar loan product at 12 per cent.

HDFC does not propose to react by slashing its rates. Its floating rate product works on a yearly rest basis unlike that of ICICI which will be calculated on a monthly rest basis.

"ICICI Home Finance's interest rate is linked to the retail home loan prime lending rate of 11.5 per cent. The rate would be reset quarterly, as this gives maximum benefit to the customer," said Madhabi Puri Buch, managing director, ICICI Home Finance.

"Customers compare floating rate products with that of nationalised banks, which offer a monthly rest. In the case of fixed loan products, customers compare the product with housing finance majors like HDFC, and are comfortable with an annual rest," said Buch.

"With the introduction of ARHL, the balance transfer product offered by ICICI would become even more attractive," she said. This will allow individuals to transfer existing loans taken at a high cost in the last four-five years to an ICICI home loan.

The ARHL will be booked as assets of ICICI Ltd and not under ICICI Home Finance, said Buch. The housing finance subsidiary of ICICI has the option to book the housing loan assets under ICICI Home Finance, ICICI Bank or ICICI Ltd. Expenses related to these loans will be booked where the assets are. ICICI Home Finance would however, continue to interface with the customer.

"Post-merger, we will have better access to short term funds," said Buch. Currently, ICICI Home Finance borrows one third of its requirement from ICICI, another half from banks and the balance from the debt market.

After the merger of ICICI into ICICI Bank, the new entity would have a priority sector lending requirement of 40 per cent of its advances. The floating rate loans of less than Rs 10 lakh would help meet the priority sector lending targets.

"We have not yet booked assets under ICICI Bank, but it could happen quite quickly whenever there is a relative advantage," said Buch. The decision depends upon the cost of funds and the asset-liability management, she added.