The Telegraph
Since 1st March, 1999
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Home loan rate hike after Diwali

Mumbai, Nov. 8: After Diwali, the gift no one wants.

Home loan rates will go up, marking the end of the festive season in more ways than one, with the Housing Development Finance Corporation Ltd (HDFC) taking the lead. The country's leading home finance company announced today that it would raise rates by 0.50 per cent post-Diwali.

Its rivals are expected to follow suit. For the moment, HDFC has kept interest rates on deposits unchanged.

Deepak Parekh, the HDFC chairman, disclosed the decision on the sidelines of a news conference to announce a long-term outsourcing contract with Barclays, the UK bank.

Rising inflation, various measures by the Reserve Bank to suck out excess money supply and a warning about home loan risks form the background to the HDFC move.

HDFC's floating rate home loans for up to Rs 10 lakh are currently charged an interest of 7 per cent while fixed rate loans carry an interest of 8.25 per cent.

The bank currently enjoys a spread of 2.25 per cent ' the difference between the rate at which it borrows and at which it lends ' in its housing finance business.

Two other leading banks ' the State Bank of India and ICICI Bank, which have a significant share of the home loan market ' have made noises about stepping up lending rates but have kept the revision in abeyance for the festive season.

'The writing is on the wall. Interest rates are rising,' an analyst said.

Last week, State Bank chairman A.K. Purwar admitted as much when he said: 'There's pressure on short-term deposit rates, on housing loan rates and on all sub-PLR (prime lending rate, at or below which a bank lends to its best customers) rates.'

A few banks such as IndusInd Bank, UTI Bank and Allahabad Bank have already announced a 0.25 per cent increase in deposit rates.

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