Home loan rates likely to inch up in next quarter  

August 29, 2009

If you have though retail loans, including home and auto would fall further in next two quarters, going by the assumptions made OP Bhatt, chairman, State Bank of India (SBI), give a second thought, as it may well be a mirage.

 “Those who have been heaving a sigh of relief over the recent fall in their borrowing costs will definitely have to brace for higher interest rates over the medium term, even as early as the third quarter of this fiscal. There is a strong possibility of a spike in home loan interest rates due to huge government borrowings which will jack up inflation. This will also have an effect on the deposit rates which will come down. Steering the right course between cheap lending rate and spiralling inflation in the future due to huge government borrowings is going to be mightily tough,” said a top-notch official of SBI who refused to be identified.

"If there is huge amount of credit growth, which I believe would happen with economic growth picking up, interest rates will go up. It all depends on the management of liquidity,” said the official

Talking to Moneylife, Kamlesh Jadav, senior manager, Home Loan of Axis Bank said, “SBI said last week that retail loan including home and auto loan rates may dip further. I feel that huge government borrowing programme in the second half of the year, coupled with high levels of inflationary pressure will certainly push the home loan interest rates higher by next year.”

Then what happens to the people who have already availed loans to buy homes? “With respect to the existing customers, the likelihood of switching from private banks like Axis, HDFC and ICICI to SBI is low, considering the huge prepayment penalty, tedious and time consuming process,” said Jadav

In the near term, however, borrowers can look forward to a slight fall in borrowing costs (but chances are bleak) as banks will have the scope for a cut of 25-50 bps in their lending rates from which borrowers may benefit. For new home loan seekers, currently the rates are near bottom.

So one can grab a house before long as the attractive scheme may be bunged up by the end of this quarter, said the official from SBI.

Meanwhile, the euphoria over availability of cheaper home loans in India seems to be premature as evidence of return looks tentative. Transactions in the housing market are already running at half their normal levels, even after the pick-up in the recent months. The speculative rally in stock prices followed with huge government borrowings is a clear warning of what could happen to home loan rates in next two to three quarters.-Vidyut Kumar Ta [email protected]