LICHF sees further rise in home loan rates

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New Delhi, Feb 22: After raising home loan rates by 0.5% recently, LIC Housing Finance Company (LICHF) on Wednesday said further hardening of housing loan rates is expected in the short-term due to low spread between cost of fund and lending rates.

“Cost of funds have increased by 1% in less than a year. So, in the short term we expect some more rises,” LICHF CEO SK Mitter said here.

He said the average yield on advances of the company till December 2005 was 8.7%, while the cost of fund has increased to about 7%. “The recent home loan rate hike is justifiable,” he said.

After the 0.5% hike, LICHF home loan rates vary between 8.25% to 9.25% for both floating and fixed plans. Pointing to the huge housing shortage in the country, he said the home loan segment is likely to grow by 30-35% year-on-year for the next five years.

The company, promoted by the country’s largest insurer LIC, has disbursed home loans of Rs 3,470 crore till December this fiscal. “We expect to disburse loans amounting to Rs 5,300 crore as against the target of Rs 5,700 crore in 2005-06, compared to Rs 4,700 crore in the last fiscal,” Mr Mitter said.

The lower than projected disbursement was due to stricter valuation of loan-repaying capability of borrowers as it aims to further prune its non-performing assets.

“We aim to reduce gross NPA from 4.69-3.9% and net NPA from 3.1 to less than 2% by March,” he said.