Fixed Deposit Rates Falling But Still Extremely Attractive
After the Reserve Bank of India (RBI) India’s central bark embarked on an ambitious interest rate easing cycle since October, slashing official interest rates by 350 basis points, Fixed Deposit (FD) rates have begun falling.
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State Owned Banks Fear Rising NPA’s
The Finance Ministry expressed dissatisfaction with public sector banks yesterday and the level of credit delivery towards small and medium enterprises. The Ministry asked state owned banks on Monday to increase their lending to these types of firms as well as increase lending for automobile and housing. Banks are reluctant to comply however fearing deterioration in credit quality if they cede to the governments wishes.
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Bank Interest Rates Expected To Tumble Over Coming Months
State Owned banks are expecting to lower their lending rates even further in February. Currently benchmark prime lending rates of state owned banks range between 12 and 13.25 per cent and some public sector banks have cut their lending rates three times since the RBI started its interest rate easing cycle.
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Indian Banks Cut Deposit Rates, Bank Rates Set to Fall by Up To 5 Percent
Banks in India, led by Government owned State Bank of India are set to reduce their deposit rates by over 50 basis points by mid January, after another 100 basis point reduction in official lending rates effected on Friday by the Indian central bank the Reserve Bank of India (RBI).
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India Announces New Economic Stimulus Package
The Congress led Indian Government on Friday announced its second emergency monetary and fiscal stimulus package in just under a month, in an effort to support its previously fast growing economy in the face of a global economic slowdown, and counter a sharp fall in global demand.
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HDFC And HDFC Bank Hit Up Debt Markets
HDFC, India’s largest non banking mortgage lender plans to raise Rs 1000 Crore or US$ 208 million through the issuance of non-convertible debentures. HDFC plans to issue NCD’s worth Rs 200 crore or US$ 41 million, whilst keeping the option open to raise another Rs 800 crore or US$ 150 million through a green shoe.
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Housing Finance Companies Facing Increased Pressure To Cut Lending Rates
After state owned banks have reduced interest rates on mortgages of up to Rs 2,000,000 or US$ 42,000, Housing Finance Companies (HFC’s) will face increasing pressure to lower their interest rate charges in order to stay competitive.
HFC’s do not obtain funding from depositors, instead obtaining it from the banking sector or the bond markets. Many are complaining that their cost of funding is showing no signs of easing since most banks are still charging double digit interest rates, some even as high as 13 per cent. This means that in many cases HFC’s funding rate exceeds their average lending rate.
LIC Housing Finance Company (LICFC) and Housing Development Finance Corporation (HDFC), which together command over 70 per cent of HFCs’ market share, charge around 11.5 per cent, whilst Dewan Housing Finance Company charges between 12 and 14 per cent.
The weighted average cost of working funds for HFCs is around 300 basis points higher compared to the public sector banks. current HFC lending rates are 50-100 basis points higher than the State owned banks. After the announcement of a reduction in interest rates, the spread is to increase by a further 225 basis points to 350 basis points (for loans up to Rs 20 lakh), making HFC’s uncompetitive.
“We need to figure out ways for cheaper finance as there is no option left for us but to reduce interest rates to remain competitive and protect our market share,” an HFC CEO, who refused to be named, told the Business Standard.
According to industry estimates, HFCs constitute over 40 per cent of the Rs 120,000 crore housing finance market and share of these companies with respect to the incremental market share is likely to fall to 15 per cent at the end of 2008-09 from around 25 per cent during 2007-08.
With the proposed cheaper window from National Housing Bank (NHB), HFCs are expected to come up with a counter strategy to protect their market share.
“We are waiting for details of the package to understand its impact. We will decide on our counter strategy in a couple of days. However, apart from the proposed NHB fund, we need to explore other alternative avenues of cheaper finance as well,” said LIC Housing Finance Director and CEO R Nair.
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Indian Banks Starting To Cut Deposit Rates
Two State owned banks on Tuesday said they were reducing their deposit rates in what could largely be viewed as a precursor to cuts in lending rates. Indian Bank and Uco Bank both cut their deposit rates within 24 hours of public sector banks announcing the home loan package.
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State Owned banks Cut Mortgage Rates
State owned Indian banks announced today that home loans of up to Rs 500,000 or US$ 10,000 would carry a maximum of 8.5 per cent interest whilst those in between Rs 500,000 to Rs 2,000,0000 (US$ 40,000) would incur an interest rate of 9.25 per cent .
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Indian Banks Association To Meet And Decide On Prime Lending Rates
State owned banks are set to finalise plans for a new interest rate regime for mortgages with a value of up to Rs 2,000,000 or US$ 40,000 as part of a Government drive to boost credit flow to the housing sector and stimulate the property market. Public sector lenders are also considering an interest rate reduction on loans made to small and medium enterprises, though most are yet to commit to a reduction in Benchmark Prime Lending Rates (BPLR).
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