Thursday, February 15, 2007

Banks to hike home loan rates further writes
A key player in the home loan market, HDFC on Thursday said it would hike housing loan rates by another 0.50 per cent this month-end or early March.

"After the CRR hike, our margins, presently at around two per cent, are under pressure and we will raise the interest rate to maintain that spread," HDFC chairman Deepak Parekh said.

A HDFC press note announced that interest rates will be reviewed next week. HDFC's current interest rates are 11 per cent (fixed) and 9.50 to 9.75 per cent on floating loans.

This would be the second time within a month that HDFC would be raising home loan rates. Earlier this month, it raised the rates by 0.5 per cent after RBI announced a 0.25 per cent hike in overnight lending rate, repo, in its monetary review. ICICI Bank had also raised home and car loans by one per cent then.

The government-owned Punjab National Bank, Bank of Baroda and Bank of India will hike interest rates across-the-board from February 16.

Bank of Baroda and Punjab National Bank have hiked prime lending rates by 50 basis points each to 12.50 per cent p.a. and 12.25 per cent p.a., respectively.

The rate hikes follow a 50 basis points hike in cash reserve ratio by the Reserve Bank of India effective in equal phases from February 17 and March 3, which would suck out Rs 14,000 crore (Rs 140 billion) out of the banking system.

Banks are raising the lending rates to make up for the increase in cost of funds, loss on account of zero-interest CRR balances and depreciation in marked-to-market investments as yields harden.

However, ICICI Bank has decided to hold interest rates charged to existing home loan borrowers.

"The bank may increase interest rates incrementally across all segments of customers including lending for automobile purchase. For housing loans, we are choosing not to increase rates for existing floating rate borrowers," ICICI Bank's executive director V Vaidyanathan said.

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