Housing finance cos may revisit business model
Special rates package by PSBs poses challenge.
Our Bureau
Mumbai, Dec. 15 The move by public sector banks to offer lower interest rates
on small value housing loans could pose a business challenge to housing finance
companies in the short term.
For now, they have adopted a wait-and-watch policy, but are expected to decide
on their rates soon, said officials from housing finance companies (HFCs).
Public sector banks (PSBs) had announced special rates for home loan borrowers
under a package announced on Monday.
For home loans up to Rs 5 lakh, PSBs will charge an interest rate of 8.5 per
cent for a maximum period of 20 years. The interest rate on home loans up to Rs
20 lakh for a maximum period of 20 years has been fixed at 9.25 per cent.
For these categories, PSU banks were charging about 10 per cent before the
announcement of the new package.
Housing finance companies are charging an average of 11 per cent.
Scoring on services
Mr R.R. Nair, Director and Chief Executive, LIC Housing Finance, said the move
by the public sector banks would pose a business challenge to housing finance
companies.
"We would look into a revision in our business models and our lending rates,"
he said.
"There has always been a difference in the bank rates and the rates offered by
HFCs. People are willing to pay more to avail the hassle-free services provided
by HFCs. However, HFCs would not be able to compete with bank rate. But we
would need to look at what is the margin between the rates and then take a
decision. The steps we would take would depend on what costs the funds are
available to us."
Around 80 per cent of LIC Housing Finance's portfolio is in the category of
loans up to Rs 20 lakh.
Wait and watch
"We are adopting a wait and watch policy," said Mr Kapil Wadhawan,
Vice-Chairman and Managing Director, Dewan Housing Finance Company.
If the cost of funds comes down, the company would pass on the benefit to the
customers, he said.
Around 90 per cent of the loans given by Dewan Housing Finance are in the
category of loans up to Rs 5 lakh and loans in the range of Rs 5-20 lakh, with
the average loan size being around Rs 5.5 lakh.
Huge gap
However, Mr Wadhawan feels that merely a reduction in the interest rates by
public sector banks may not change the situation significantly for other
players in the home loan market.
"The demand and supply gap is too huge in the home loans segment. We have an
advantage of being spread across 200 locations and the fact is that we
concentrate exclusively on home finance, that too in the lower and middle
income segments," Mr Wadhawan said.
http://www.thehindubusinessline.com/2008/12/16/stories/2008121651790600.htm
Government cannot make man richer, but it can make him poorer
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