Housing loan rates may go up

Credit policy: The impact

Interest rates on home loans are likely to go up after the festival season. Major players are set to hike their rates by 25-50 basis points for both floating- and fixed-rate loans after the Reserve Bank of India increased the risk weight on such assets.

The new prudential norms are expected to check the quality of assets and also slow the pace of lending. Bankers are also apprehending an asset bubble.

Housing Development Finance Corporation Managing Director Keki Mistry said: "Due to the increased cost of capital that has to be provided, banks will have to be more discerning in their lending. The new norm has brought housing finance companies and banks on a level playing field."

ICICI Bank, the fastest growing player in the home loan market, says it will not slow its pace and is yet to decide on rates. ICICI Bank offers fixed-rate loans of up to 20 years at 7.75 per cent.

"It is too early to take a decision on home loan rates. However, we will not slow our pace of growth. We have no shortage of capital with our capital adequacy ratio at 15.2 per cent," Chanda Kochhar, executive director, ICICI Bank, said. "We do not need to raise capital for complying with the new norms," she added.

Other players like Union Bank of India and Bank of India are not considering any immediate rate hike.

According to a CRISIL report, banks will need to allocate an additional Rs 1,700 crore in order to meet the heightened prudential norms.