Mumbai: With the State Bank of India slashing external benchmark rates by a quarter percentage point, home financiers could do likewise.

Housing finance companies are now considering rate reductions by up to 25 basis points across products. They will hold asset liability committee meetings in January to decide new rates. LIC Housing Finance took the lead in cutting rates just a few days ago.

The likes of HDFC, PNB Housing Finance, and Indiabulls Housing have begun examining the commercial viability of reducing rates, said people familiar with the matter.

“Competitive pressure will ensure that housing finance companies also cut rates,” said Karthik Srinivasan, senior vice president at ICRA Ratings. “The quantum will depend on their cost of borrowings as barring select HFCs, access to cheap funds remains a challenge for many. They would not have a liquidity glut like banks, which accesses cheap money via public deposits.”

Home financiers have been facing liquidity challenges since the IL&FS defaults in September 2018.

The expected round of rate reductions is likely to be product specific. LIC Housing, for instance, slashed rates for those applications where one of the applicants is a woman.

“A decision on rate cuts depends on external factors including competition and cost of borrowing and existing pricing of various mortgage products,” said Kapish Jain, CFO at PNB Housing Finance. The company’s asset liability committee will meet this month to review rate decisions.

Banks have grabbed market share of late at the expense of home financiers. In the September quarter, total housing credit expanded nearly 10 per cent to Rs 19.5 lakh crore, show data from ICRA Ratings. The share of HFCs and non-banking finance companies is now at 36 per cent, compared with 38 per cent a year ago. The share of banks stood at 64 per cent, versus 62 per cent a year earlier.


“We will be considering a rate cut in our next asset liability committee meeting in the first week of January,” said Gagan Banga, MD, Indiabulls Housing Finance. “We expect demand to pick up in the first quarter of the calendar year 2020.”

In the fourth quarter of FY20, lenders expect a pick-up in credit growth. Small value loans, which are helping fund affordable homes, might see reduced rates.

“Housing finance companies are likely to cut about 25 basis points in the next few weeks following the SBI move,” said Vipul Patel, founder MortgageWorld, a Mumbai-based advisory firm. “But expected rate reductions would be subject to ceilings where low value loans would be prioritised.”

SBI Monday announced a reduction in its external benchmark-based rate by 25 bps to 7.80 per cent from 8.05 per cent per annum. The revision comes into effect from Wednesday.

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