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11
January 2017
The
lending rates cut, which effectively set off a price war in the Rs 13 trillion
home loan market, could lead to increased competition and balance transfers in
the highly competitive housing loan market, rating agency ICRA said in its
report. The Total Investment & Insurance
Solutions
With
a bulk infusion of fresh liquidity arising out from the demonetisation, State
Bank of India reduced the lending rates for home loans by 50 bps to 8.6 percent
(for floating rate loans), various lenders followed suit. The Total Investment & Insurance Solutions
Key
lenders that together account for over 65 percent of the home loan market, now
offer interest rates in the range of 8.5-8.7 percent after the reduction,
compared with their earlier rates of 9.1-9.3 percent, the agency said. The Total Investment & Insurance Solutions
"While
the reduced rates are applicable for new loans and loans linked to Marginal
Cost of Funds based Lending Rate (MCLR), this could lead to increased
competition and balance transfers in the highly competitive Indian housing loan
market, especially the prime salaried segment," the report said. The Total Investment & Insurance Solutions
Loans
linked to MCLR for banks were less than 15 percent of the overall home loan
book, it said. The Total Investment & Insurance
Solutions
The
report said lenders might also try to retain borrowers by giving them the
option to shift to a lower interest rate by paying a fee. The Total Investment & Insurance Solutions
Housing
finance companies (HFCs) would also benefit from the reduction in MCLR by various
banks and should be able to re-price a portion of their liabilities.
However,
the report said the smaller HFCs are likely to get impacted more on account of
their relatively higher operating cost ratios. The Total Investment & Insurance Solutions
"Given
that only a few HFCs would be able to match the interest rates being offered by
banks , this could lead to some balance transfers from HFCs to banks and hence
an increase in banking sector market share," the report added.The Total Investment & Insurance Solutions
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