As banks begin to cut rates after of the announcement of fiscal and monetary packages by the government and RBI over the weekend, it emerges that the incentive package for low-cost homes includes an interest subsidy of 3% for loans of up to Rs 5 lakh.
This means that compared with the current benchmark prime-lending rate of around 13%, customers for low-cost homes would be able to borrow at around 10%. They will also be assured of a hedge against possible increases in interest rates of up to 2% in case of floating rate loans. UCO Bank CMD SK Goel told FE, ?The rate of interest on these loans will not exceed 10%, which is 3.5% less than the current rates. Later on, we will announce a scheme for borrowers in the Rs 5-20 lakh category, where the rate of interest will be 11%.?
On Monday, public sector Union Bank cut its benchmark prime-lending rate from 13.25% to 12.50%, while HDFC Bank announced a 50-basis point cut effective in two tranches of 25 bps each, the first from December 15 and the second from January 1.
Said a senior SBI official, ?Our bank?s asset-liability management committee will be meeting on Wednesday to take a call on interest rates.?? Simultaneously, India Infrastructure Finance Company Ltd (IIFCL) is expected to issue Rs 10,000 crore in tax-free bonds in tranches until March 31. The interest rate on these bonds is expected to match that of ten-year government bond paper, which is close to 8%. The 2018 debt paper issued in November carried an interest rate of 8.24% and the yield on this bond closed at 6.69% on Monday.
The weekend stimulus package includes a reduction in repo and reverse repo rates by 100 basis points, along with special refinance packages of Rs 4,000 crore for housing and Rs 7,000 crore for SMEs, in addition to the support for IIFCL. Company CMD SS Kohli told FE the bonds may be offered to foreign investors as well.
?We are not putting any restrictions. Overseas investors would have to adhere to guidelines issued by Sebi,? he said. Sebi permits FIIs to buy up to $3 billion in corporate bonds a year. Kohli added that the Central Board of Direct Taxes is expected to give its approval to the bond issue in a few days. The finance ministry is expected to finalise the modalities of the bond issue by Tuesday.
TS Narayanasami, CMD, Bank of India, agreed that the packages announced by RBI and Centre would help stimulate growth. ?Banks will come out with attractive packages for housing loans to be disbursed within the next two to three days. Customers will be induced to avail housing loans until June 30.?