Thursday, March 20, 2008

Lowering of home loan rates brings cheer to homemakers

The lowering of interest rates on home loans has brought some cheer among the homemakers with house loan seekers in the Valley expecting banks operating in Kashmir following the suit.

Experts said during past some months the growth rate of housing sector in India, and Kashmir as well, was sluggish due to rise in interest rates and other restrictions by Reserve Bank of India while tightening its credit policy.

The housing and realty sectors, experts said, had felt the heat of high interest rates in the Valley as well.
“Restrictions put on the housing loan sector by the RBI during its last credit review have slowed down the housing loan market in the Valley,” said a banker.

However, a recent development in which three banks viz. Housing Development Finance Corporation, Bank of Baroda, and Allahabad Bank reduced the interest rates on home loans from 25 basis points to 50 basis points as a festival season offer, has generated a hope that banks operating in Kashmir may also follow the suit.

Head Commerce Department KU, Khurshid Bhat said, “If the banks operating in Kashmir lower the interest rates on home loans, it will have impact on the multi players like house buyers, companies dealing in real estates and banks.”

“We don’t have the big companies in the Valley in real sector. However, the small firms in Kashmir would get benefited should the major banks in Kashmir reduce the interest rates on home loans. There would be surely a positive impact on public at large,” he said.

However, many experts hold a contrary view. “Just before six month the interest rates on home loans were hovering around 8-9 per cent, which mean that the recent lowering won’t have that major impact. Home loan is still on higher side,” experts said.

A senior executive of Punjab National Bank said, “PNB is the only Bank providing housing loan at cheaper rates as compared to prevalent market rates. We charge 9 per cent on the home loan to be repaid within less than 5 year. For the loans of 5 years to 20 years duration we charge 9.5 per cent.”

Experts said: “The RBI while seeking to bring down the inflation through monetary measures has limited options apart from raising repo and reverse repo rates.”

At present reserve ratios set by RBI are: CRR 7 per cent and SLR 25 per cent.

“Factoring the risks attached to home loans, the RBI has prescribed a higher risk weight of 100 per cent for residential housing loans with LTV (loan-to-value) ratio of more than 75 per cent, under its final Basel II guidelines,” said MBA student Khurshid Amin.

“If interest rate on housing loans comes down, it will have a favourable impact on the middle class in particular and common masses in general and thereby will increase the demand for real estate”, said Finance expert, Sovais Shafi.

Assistant Vice President, Jammu and Kashmir, HDFC Bank Zubair Iqbal said, “We don’t provide housing loans to our customers at any of the branches in Kashmir. We do have a separate institute Housing Development Finance Corporation, which provides home loans in Kashmir Valley.”