Home loans set to rise despite minister's plea

February 5, 2007: Finance Minister P Chidambaram on Monday requested chiefs of public sector banks not to raise interest rate on home loans. But at least the private banks are set to raise the interest rate — by a steep one percentage point.

Chidambaram’s request came at a review meeting where he also urged the banks to rebalance their loan portfolios and moderate credit growth to some sectors of the economy.

However, highly placed sources in ICICI Bank, the largest player in the home-loan segment, said that cost of funds has gone up substantially in the past couple of months, which makes a strong case for rise in the floating rate. Currently, the floating rate is between 10 and 10.25 per cent. “Deposit rate, which was around 6.5 per cent in November, has gone up to 9 per cent. The significant part of this rise in cost will have to pass on to the floating-rate consumers across the sector,” they said.

Sources in HDFC, the second largest player in housing loan, said if the cost of funds continue to rise, the interest rate will have to rise.

Heads of public sector banks said as the private banks dominate the home-loan segment, it would be difficult to control the interest rate.

Source: Hindustan Times