Month: March 2013

HDFC Bank cuts base rate by 10 bps

Mumbai, March 29:  Business Line

HDFC Bank has decided to cut its base rate by 10 basis points to 9.6 per cent. The reduction in rate will be with effect from March 30.

Base rate is the minimum rate at which banks can lend its borrowers.

The country’s second largest private sector lender is the first bank to reduce its lending rate after the Reserve Bank of India cut its repo rate by 25 bps on March 19.

Post this reduction, HDFC Bank’s base rate will be the lowest among major banks. Among other private banks, ICICI Bank’s base rate is 9.75 per cent since April 2012, while that of Axis Bank is 10 per cent.

Among public sector banks, the country’s largest lender State Bank of India has one of the lowest base rates, at 9.7 per cent.

Lending rates to remain high in near term: Bankers

24 Mar 2013, PTI.

Borrowers troubled by elevated interest rates will have to wait for a bit longer for relief as bankers have virtually ruled out any immediate cut in the lending rates, citing high cost of funds.

The stance comes even after the Reserve Bank delivered two successive rate cuts of a cumulative 0.50 per cent this year.

“The basic thing that is required – the cost of deposits – is still in the higher side,” Union Bank of India Chairman and Managing Director D Sarkar said, explaining his bank’s inability to cut rates now.

Pratip Choudhary, the chairman of SBI, also said it is impossible for his bank to cut rates in the near term.

Many state-run banks, which generally rely on the costly bulk deposits to shore up their deposit bases unlike their private sector counterpart, which mop up the low-cost savings and current account deposits, have been ratcheting up their term deposit rates for the past few months.

The poor deposit collection problems for the state-run banks were compounded with finance ministry’s directive last year asking them to bring down their bulk deposit ratio to 15 per cent of their total deposits by March 31.

In a move that some experts saw as a sign of a weakness in deposit mobilisation, SBI upped its deposit rate offering by 0.25 per cent last month.

Deposits have grown only about 13 per cent during the fiscal, while credit has grown much faster at close to 17 per cent. In the absence of sufficient deposits, the credit deposit ratios for the banks go up, according to the latest RBI data.

The interest rate scenario has been at an elevated level for over two years now, after the RBI went on a 13 consecutive rate hikes between March 2010 and October 2011 with a view to fight double-digit inflation.

EMI relief for home loan takers in the offing

19 Mar 2013, ET Bureau.

MUMBAI: Home Loan borrowers hoping for lower interest rates may have to wait a little longer. Banks are not likely to pass on the benefits of RBI’s repo rate cut to borrowers this month.

“There is no reason to believe that easing will happen at a rapid pace but it may happen at a measured pace. We expect easing of deposit rates as we enter new fiscal year, and as this happens, the transmission will take place,” said SS Mundra, chairman and managing director, Bank of Baroda.

However, borrowers need not despair. While interest rates are unlikely to be reduced immediately, they can expect relief in the coming weeks. “Since the deposit growth has been muted, interest rates on deposits too have remained high. Therefore, we expect the monetary transmission to take place only after two to three months,” added B A Prabhakar, chairman and managing director, Andhra Bank.

And when banks do cut rates, you will have two options to choose from – reducing your EMIs or the loan tenure. “In such cases, it might be tempting to get your EMI lowered, but refrain from doing so. Getting the tenure shortened should be your priority so that you clear your dues sooner,” says certified financial planner Pankaj Mathpal, CEO, Optima Money Managers. Remember, shorter tenure would mean lower interest burden on your loan.

SBI chief pitches for 50 bps cut in CRR, repo rate

18 Mar 2013, Business Line.

A softening in lending rates will be conducive for kick-starting the investment cycle in the country, according to State Bank of India Chairman Pratip Chaudhuri.
Whichever country has shown rapid growth, particularly in the manufacturing sector, the interest rates were much lower.
Rates of interest need to come down further. Our base rate is at 9.70 per cent, I would like to see a base rate of something like 9.50 per cent because internationally the rates are so low,” said Chaudhuri.

Base rate is the minimum lending rate below which banks cannot lend. The actual lending rates charged to borrowers by banks are the base rate plus borrower-specific charges, which include product-specific operating costs, credit risk premium and tenor premium. India’s largest bank last pared its base rate from 9.75 per cent to 9.70 per cent on January 30.

SBI nudged its base rate lower a day after the Reserve Bank of India cut both the repo rate and the cash reserve ratio (CRR) to 7.75 per cent (from 8 per cent) and 4 per cent (from 4.25 per cent of deposits), respectively.

Repo rate is the interest rate at which RBI lends short-term money to banks. CRR is the slice of deposits that banks have to park with RBI. Chaudhuri said: “If you are a corporate in India and want to set up a petrochemical plant, you will pay 11 per cent interest rate. But if your competitor in Dubai is setting up a similar petrochemical plant, he will pay an interest rate of 3 or 4 per cent… So, you are uncompetitive from day one.”
Policy rates

The SBI chief said lending rates in the banking system could soften if the central bank cuts key policy rates in its mid-quarter review of monetary policy, which is due on Tuesday.

“Both the CRR and the repo rate should be cut by 50 basis points each. CRR cut is more important as it releases primary liquidity into the banking system.

“Whereas a repo rate cut is more of a signal/an indication (of the direction of interest rates). It is not very material but, yes, the cost of refinance goes down,” said Chaudhuri.

The central bank has underscored that subdued investment activity in the economy has led to the decline of capital goods production. With investment activity remaining subdued, the prospects of a recovery in industrial growth appear weak.

In its latest macroeconomic and monetary developments document, the RBI observed that the emerging slack in investment needs to be addressed. This slack has emerged from a combination of domestic and global factors.

“While global growth may remain slow for some more years as significant fiscal adjustment is needed to overcome the debt overhang in the advanced economies, the domestic growth could respond to the policy (reform) action that has now begun,” it said.

Allahabad Bank lowers home loan rate by 5 bps to lure high-end customers

13 Mar 2013, ET Bureau.

KOLKATA: State-run Allahabad Bank has lowered interest rate by 5 basis points to 10.25% for housing loans above Rs 30 lakh to attract new customers before the end of this fiscal.

State Bank of India, India’s largest bank, offers home loans above Rs 30 lake at 10.10% rate, while ICICI Bank’s rate for this high-value bracket is 10.5-75% a year. Kolkata-based Uco Bank offers home loan at 10.2% a year.

A senior official in Allahabad Bank said the bank has good demand for loans above Rs 30 lakh of late, while borrowers planning to take a loan less than Rs 25 lakh are deferring their decision to get the benefit of tax breaks announced in the budget.

The bank offers a 50% rebate in home loan processing fee. The government has proposed that a person taking first home loan up to Rs 25 lakh would get an additional Rs 1 lakh deduction of interest over and above the present deduction of Rs 1.5 lakh. To get the benefit, loan needs to be availed in 2013-14 and the value of the property has to be below Rs 40 lakh.

Budget 2013: Housing proposals may encourage lower, middle income groups

28 Feb 2013, ET Bureau.

KOLKATA: The budget proposals related to the housing sector are expected to encourage the lower and middle income groups to take home loans, captains in the housing finance sector said.

Finance minister P Chidambaram has proposed setting up of a Rs 2000-crore dedicated fund for building dwelling units in urban pockets and raised the allocation by 50% for rural housing units. He has offered additional tax sops for home loans up to Rs 25 lakh.

DHFL Vysya Housing Finance managing director R Nambirajan said: “The proposals are aimed at encouraging the lower and middle income group to take housing loans.”

A senior official with GIC Housing Finance also welcomed the proposals saying that tax breaks will encourage the housing sector as a whole.

Home buyers can claim an additional deduction of interest of Rs 1 lakh to be claimed in 2014-15 over and above the deduction of Rs 1.5 lakh available now for self-occupied properties under section 24 of the Income Tax Act. If the limit is not exhausted, the balance may be claimed in the next fiscal.

However, it is not clear whether the fund for urban housing targets any particular segment. The FM’s budget speech is silent on this aspect.
“It is proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. In consultation with RBI, I propose to provide Rs 6,000 crore to the Rural Housing Fund in 2013-14,” Chidambaram said without specifying the target segment.

In so far as the rural housing goes, he proposed to raise the allocation to Rs 6,000 crore from Rs 4,000 crore.

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