Mumbai, April 14 (IANS): Major lending firms on Tuesday announced reduction in their home loan rates, days after the Reserve Bank of India (RBI) in its latest monetary policy review asked financial companies to transmit the benefit of past policy rate-cuts to consumers.
Commercial bank major ICICI Bank reduced its home loan rates by 25 basis points or 0.25 percent for all existing and new customers.
The new rate will now stand at 9.90 percent effective from April 14. The bank said that women as well as applicants from weaker sections will get a special home loan rate at 9.85 percent.
India’s second largest housing finance company Dewan Housing Finance Corporation Limited (DHFL) revised its home loan rate to 9.90 percent per annum with effect from April 15.
“The reduction in the interest rate reflects our commitment towards enabling home ownership in tier-2 and tier-3 towns for each and every Indian, especially in the LMI (lower middle and middle income) segment," said Kapil Wadhawan, chairman and managing director, DHFL.
On April 12, the State Bank of India (SBI) also cut its home loan interest rate up to 25 basis points.
First off the block to cut the home lending rate was HDFC, the country's largest mortgage firm which reduced home loan rate by 0.2 percent to 9.90 percent.
The reserve bank is concerned that its two previous repurchase rate cuts in January and March have not been transmitted by banks to consumers.
The RBI had cut its repurchase rate by 25 basis points on January 15 and on March 4.
The repurchase rate is the interest commercial banks pay for borrowing money from the central bank to meet short-term fund requirements. The reverse repurchase rate is the interest central bank pays when surplus short-term funds are parked with it by commercial banks.
Currently, the repurchase rate and reserve repurchase rate have been maintained at 7.5 percent and 6.5 percent respectively.
Commercial banks have been reluctant to lower their base rates, or minimum lending rates, citing high cost of deposits.
Another major reason for banks' reluctance stems from the fact that most of them are burdened by enormous non-performing assets (NPAs) in the form of bad loans to finance infrastructure projects.
India Inc. had also called upon banks to follow the RBI's advise in cutting lending rates to give a fillip to consumer demand.
"Greater concern to industry is the fact that the transmission of the rate cuts introduced earlier by the RBI has not happened at the level of the banks," Jyotsna Suri, Federation of Indian Chambers of Commerce and Industry (FICCI), had said while commenting on the first monetary policy review of the RBI on April 7.
The RBI in its first monetary policy review of 2015-16 has decided to retain the repurchase and the reverse repurchase rate at existing levels.