The cut in the Retail Prime Lending Rate by HDFC will be effective from March 9 and would benefit a large number of its home loan borrowers.
India’s largest home loan provider HDFC (Housing Development Finance Corporation Limited) has cut the Retail Prime Lending Rate on housing loans by 5 bps or 0.05 per cent, which would benefit a large number of its home loan borrowers.
Introduced by the Reserve Bank of India (RBI) in financial year 2003-04, the Prime Lending Rate (PLR) is the rate at which most trustworthy and creditworthy customers may get loan from commercial banks.
Generally banks charge an extra percentage over the benchmark PLR to determine the home loan rate. The spread depends on credit worthiness of the borrower, loan amount, lending period, quality of collateral security among various other reasons.
The spread also provides cover against the costs banks incur for lending, including the cost of default risk.
The PLR is the primary determiner of most of the interest rates charged by banks and housing finance institutions and is crucial for borrowers due to its direct impact on the lending rates for a home loan.
While the PLR is based on Repo rate, it’s the RBI, which decides the policy rate in its bi-monthly policy meeting through its Monetary Policy Committee.
Although the RBI has kept the policy rates, including the Repo rate, unchanged during the last policy meet, but the central bank asked the banks to pass the benefits of a series of rate cuts last year to the customers by linking the lending rates to the Repo rate.
As a result, a number of banks have cut the loan rates despite no change in policy rates following the RBI directive and HDFC is the latest private lender to follow the suit. The reduced rate will be applicable from March 9, 2020.
The reduction in home loan rate by the country’s largest private housing loan provider would also boost housing demand, giving some respite to the liquidity-hit builders and promoters facing hardship in clearing huge unsold inventories.
In its regulatory filing with NSE, the private lender said, “HDFC reduces its Retail Prime Lending Rate (RPLR) on Housing Loans, on which its Adjustable Rate Home Loans (ARHL) are benchmarked by 5 basis points, with effect from March 9, 2020.”
“The change will benefit all existing HDFC retail home loan customers,” it added.