Banks will hold on to home loan rates: Rahul Mehrotra, CEO, Religare Housing Development Finance

After being in a slump for many years, real estate sector has started showing signs of recovering. Will increase in home loan rates throw a spanner in the works? Rahul Mehrotra, Managing Director and CEO of Religare Housing Development Finance Corporation Limited (RHDFCL), which provides loans to the low-income segment primarily informal sector, tells Business Today about the interest rate outlook and its likely impact on the real estate sector.  

BT: Do you expect an increase in home loan rates?

Rahul Mehrotra:  I think it might not happen immediately, but yes, before end of fiscal year we might see a rate change happening. Rate change by SBI is a precursor, but I don't see a very drastic change happening immediately. All the banks will hold on to the rates.  

BT: Can increase in rates adversely impact the sector?

Rahul Mehrotra:  I don't really see a big impact happening. Why because I think the interest rate increase if it happens will not be a big change. I also think there is obviously an absorption capacity available with various banks and the lending institutions. It depends on how much they actually pass on to the customer. From that perspective, I don't see that customers will be impacted much in terms of interest rate. It is more about the threat of third wave coming in and their understanding that their cash flows will remain stable for a recent period of time.  

BT: Why do you say banks will be able to absorb any rate hike?

Rahul Mehrotra:  I basically come from the optimistic band of companies, and I can talk about my organization and we have passed on the rate increase only once in the entire six to seven years. Otherwise we have always absorbed all the rate increases. From our perspective, I definitely see that we will not be passing on any rate increase immediately, considering that it will not be much rate increase.  

I feel that bankers do not really look at passing because this is a time when after two years you have an uptick coming, there is a lot of demand. And finally we are seeing some light at the end of the day for real estate sector as well and if that is happening and today if the rates are increased, then it will not be a good moment to push the demand down again.

BT: Has there any been any uptick in housing demand?
 
Rahul Mehrotra:  There is definite uptick happening all across. It's not basically about specific markets like NCR Delhi or Mumbai region or partial Gujarat, even south has come forward. If we compare, the kind of queries we usually get I think there is clear uptick 7-8 per cent as compared from the last year. I think we still need to watch out and see if the demand sustains itself, we will have uptick of close to 10 to 12 per cent.
This has primarily to do with the fact that with second wave of COVID-19 going off and all the lockdown restriction removed by the various government people are back with the demand. Weather you look at retail or capital good now it's more about spending now, that is affecting large part of real state as well. So the segment is seeing a very healthy demand currently.
 
BT: Is it right time to buy a house?

Rahul Mehrotra:  I think buying a house is obviously long term decision and the segment we usually operate is a first time buyer. In affordable housing sector, it's usually their first home they are actually buying and taking a loan and we take pride that we support these kind of buyers who are buying for first time. Usually in this segment people wait for their cash flows certainty to happen and considering that Omicron is around the corner, I feel people are still holding on to the fact that Omicron should not do any kind of damage to the segment and to the earnings of the segment that we service for. If the cash flows continue for the next three to four months, we will definitely witness 10-12 per cent growth.  

What are some of biggest challenges for the industry?

Rahul Mehrotra: I think the biggest concern, obviously is availability of lines from banks. Because of certain defaulters in the industry bankers have become very restrictive in their lines going forward to HFCs and NBFC. With COVID-19 moving away, there is a lot of positivity on that front, but I think still we need more support from the banks, so that HFCs and NBFC are able to get regular lines which we need to service our client much better because the lending company needs a very strong liability strategy to survive.  

BT: Are there any signs of overleveraging?

Rahul Mehrotra: I should not say that currently I am seeing any overspending, but I fear that might happen. And my fear comes from the fact that our customers have actually come forward and there have been a lot of requests to raise loan amount and some reasons are definitely genuine. For example, they said that during lockdown you are not able to commute properly, so I want to buy a bike. So for that, I require money because personal loans are very expensive in our segment. So it is always good to take a loan against properties because of that much cheaper. But at the end of the day, if your cash flows, as I mentioned, are not foreseen properly, then you will definitely fall into that trap. 

Also Read: Bank of Maharashtra cuts interest rate on home loans to 6.40%