Home loan rates in for revision: LIC Hsg chief

The Housing Development Finance Corporation (HDFC) will not be alone in hiking its lending rates. LIC Housing Finance is also in the process to revise its rates with the cost of funds having increased.

With government security yields having risen by over 150 basis points since the beginning of the financial year, cost of borrowings for housing finance companies has increased.

"We are reviewing the situationm but a hike in home loan rates is on the cards," said A K Dasgupta, chief executive and director LIC Housing Finance. LIC Housing Finance will review the situation at its coming investment committee meeting at the end of the month.

State-run banks and private sector banks have ruled out any increase in home loan rates for the time being.

However, they have the ability to access cheap funds and even reduce spreads if necessary. State Bank of India (SBI) recently reduced interest rates on short-term deposits by 50 basis points.

In contrast, cost of funds for housing finance companies are dependent on market rates, which have off late risen. A triple-A rated paper which was quoting at 5.9 per cent in February-March is today quoting at seven per cent.

Cost of funds has gone up, and in the current competitive market, housing finance companies are unable to pass this on to the customers. This is putting pressure on our spreads, said Dasgupta.

LIC Housing Finance's spreads range between 150 to 220 basis points currently, less than the spreads ruling in the first quarter of the financial year.

LIC Housing Finance proposes to raise Rs 200 crore from the GDR market thereby augment its capital resources. "While the external commercial borrowing route is an option, today it does not look very attractive with global interest rates hardening, said Dasgupta. LIBOR (the London Inter Bank Offered Rate) has risen by almost 75 basis points, while the US Fed recently hiked its rates by an additional 25 basis points.

LIC Housing Finance does not wish to apply to the Life Insurance Corporation of India (LIC) for further loans as it would like to adopt multiple credit lines.