Monday July 23, 02:21 AM
Private banks may cut home loan rates |
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High liquidity and an inflation rate that has remained below 5 per cent for six weeks in a row have raised banks' hopes that they can lower home loan rates after the credit policy review on July 31. But it is unlikely to be a broad-based reduction, with state-owned banks preferring to hold rates. Private banks, which effected severe hikes over the last few months, however, may slash them.
The Reserve Bank of India (RBI) is unlikely to signal a reversal of its tight monetary policy in the upcoming credit policy review, according to experts. Any reversal in short-term interest rates could be seen only by the year-end, they said. "Public sector banks have been quite considerate to home loan borrowers. We did not hike rates twice when private banks did. So, state-owned banks will not be in a position to slash rates," said MV Nair, chairman and managing director of Union Bank of India.
Interest rate reductions by up to 0.25 percentage points by some banks of late on home loans also have the trappings of a marketing pitch as they are offered only to new customers.Economists are expecting the RBI to continue to hold rates, in line with what it initiated in April 2007. "The RBI will not signal a reversal in the interest rate uptrend, which has reined in key monetary variables such as inflation, money supply and credit growth. A signal could nullify the effect of the good work done," said Sachchidanand Shukla, an economist with Enam Securities.
However, banks would prefer a rate cut, given deposits are outpacing credit demand, leading to rates at which banks borrow overnight money from each other falling to around 1 per cent. They expect that lower rates will boost credit demand. "It is an awkward situation for banks. Resources raised at 9 per cent have to be deployed at 1 per cent in the call market now," said A Prasanna, an economist with ICICI Securities."They are expecting a signal from the RBI on an interest rate cut. But that is unlikely though the market rates indicate a softening regime," Prasanna added.
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