HDFC extends festival rates till Jan

MUMBAI: The country’s largest housing finance company HDFC has extended its festival offer upto the end of this month. Under the offer, the company offers borrower rates that are 75-100 basis points lower than its rack rates.

The extension of the festival offer is seen as reflection of the slight easing of liquidity in the money markets in January after an initial tightening in end-December.

HDFC has been offering floating rate loans at rates as low as 10.25% under the festival offer scheme. These rates were introduced towards the end of last year and were earlier valid up to December 31.

Sources said that rates were expected to rise in the third quarter when there is generally a tightening of liquidity as lending by banks picks up. This year, however, the interest rate outlook does not appear to be as clear. Although there was a slight tightening of rates towards the end of December, rates have eased since and bond yields have touched new lows.

The finance minister’s statement asking banks to cut rates by 50 basis points is also seen as favouring a lower interest rate regime. However the increase in deposit rates by State Bank of India has sent mixed signals since HDFC benchmarks its retail deposit rates against that of State Bank.

Sources said that HDFC was also looking at developing a scoring system where individuals who are seen as better credit risks are given lower rates. This would depend on the individual’s track record. A mechanism for tracking an individual’s credit rating is being developed by the Credit Information Bureau of India where incidentally HDFC is one of the promoters along with SBI.

Although liquidity continues to remain easy, the outlook for interest rates continues to remain highly uncertain.
This uncertainty is reflected in the differential between floating rate home loans and fixed rate home loans offered by HDFC which is as wide as 3.25%.

Because of this huge differential a majority of borrowers continue to opt for floating rates. Lenders say that although most loans are for terms of 15 years and above, a majority of loans are prepaid, and the average tenure for institutions such as HDFC is less than 8 years.

This would mean that a borrower would need to have an 8-year outlook on interest rates. Following the FM’s statement on interest rate some bankers have said that there is a case for lowering rates while others said that they would wait for interest rate signals from the central bank in its policy review later this month.