With the Indian economy beginning to stabilise after it slowed down significantly during the second half of 2008-09, largely due to the knock-on effect of the global financial crisis, the Reserve Bank of India (RBI) is sending out hawkish signals in its second-quarter review of monetary policy for 2009-10. This is expected to prompt the nationalised as well as private sector banks to withdraw the special schemes on home loan rates by end of the current calendar year. The special schemes offered by the Indian banks have resulted in the rates of home loans dipping to the lowest levels since the 5 years.
“With banks likely to raise the home loan rates by January 2010 to align them with the expected hike in key policy rates, the realty market in India will once again be affected due to increasing interest rates,” says Ankit Shah, director of Vishnu Properties, a mid-sized real estate company in Ahmedabad.
In an attempt to revive the cash-strapped real estate sector in India, various banks have started offering teaser rates for the first few years on home loans. For instance, Development Credit Bank currently charges 7.95% interest for the first year on their home loans, while State Bank of India (SBI), Dena Bank and Canara Bank charge 8% interestfor the first few years. After the offer period, such loans are converted into floating rate loans.
 In addition to this, banks rolled out attractive festive offers such as zero processing fee. Although the festive season is over, most banks are continuing with the aforementioned offer and have planned to extend it till December end, when the special schemes on home loan rates will be withdrawn. This is done to shore up credit demand to the maximum and reap the best during these months.
Impact of RBI’s quarterly review
With the RBI’s quarterly review giving out a clear hint that a reversal of the expansionary monetary policy is imminent, some nationalised banks have already informed the Finance Ministry that they will not be in a position to continue with the offers on retail loans.
The apex bank has hiked its inflation projection from 5% to 6.5% for 2009-10. Besides, the RBI governor in his policy speech hinted at an asset bubble. Moreover, economists and bankers opine that there will also be a 50-100 bps hike in key rates within the next 6 months.
Private sector banks, which were forced to offer home loans at lower interest rates after the announcement of special schemes by their state-owned rivals, are likely to hike rates once the nationalised banks withdraw the special schemes. Considering the fact that floating rate loans comprise a large part of the housing loan segment, any increase in rates will affect a large number of existing loans as well. “The RBI should have encouraged the soft interest regime to continue till the time the Indian realty market witnessed a marked pick-up in sales,” says Vishal Pande, director of Amte Realtors, a mid-sized real estate company in Patna.
However, the good news is that the tightening of the lending rules and measures like lower provisioning for loans to commercial real estate, taken during October 2008 were withdrawn in the current review.
Jeeta Bandopadhyay |
