Banks looking to RBI for cues on rates

Last fortnight, as Ben Bernanke lowered the Fed rate by 50 basis points, there was cheer in India as well. It has heightened expectations of a reversal of the rising interest rate cycle in the country.

Already, some banks and financial institutions have begun taking pre-emptive action by announcing lower interest rates on retail loans. HDFC, for instance, is offering a cut of 50 basis points for new home loan users up to October 31.

A new entrant to the home loan category, Wizard Home Loans, part of the GE Money group, announced an inaugural rate of 9.9 per cent. Public sector banks, too, have announced cuts ranging from 25-50 basis points. However, rate cuts are not an allpervading story yet. Most banks are waiting for cues from the Reserve Bank of India, which will announce its review of the credit policy in late October.

For home loans, the largest category of retail loans, status quo, too, does not seem like bad news. Rising interest rates and soaring asset prices have ensured that few investors remain in the market as of now.

Egisto Franceschi, CEO, Wizard Home Loans, says those looking to buy properties for investment may be able to wait and watch. “We do believe that if interest rates stay at this level or come down, more people will be inclined to buy their dream homes,” he adds.

Renu Sud Karnad, Executive Director, HDFC, echoes the same sentiment. “Though property prices have risen in certain pockets of the country, buyers are still able to afford them as the cost of a house has declined to about five times an individual’s annual salary, compared to 10 years ago when a house cost nearly 12-15 times an individual’s annual salary,” she adds. And rate cuts, when they eventually come, will only boost that number.