Rate cut Is Fine, itís Prices that Matter
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Following the RBI decision, the National Housing Bank (NHB), the regulator and refinance provider to housing finance companies also slashed its lending rates by 0.25 per cent.
A home loan borrower would stand to gain marginally as illustrated in the table. For a loan amount of Rs 20 lakh at 12 per cent interest, the EMI currently payable is Rs 22,022. At a 25 basis point cut, the EMI on the same amount is Rs 21,674, a difference of Rs 348, or Rs 17 per Rs 1 lakh of loan amount.
"Our Assets Liability Management Committee will examine as to what extent and to what percentage, benefits can be passed onto the customers," said VK Sharma, director and chief executive, LIC Housing Finance. When asked if the revision will only be for new customers or existing customers too, he said, "We will review the prime lending rate and the benefits will be passed to all."
The rate cut, however, would not necessarily mean that the liquidity tap has been opened for the real estate sector. "Of course, each lender will have to take a view based on respective asset-liability management and margin position. However, one is not sanguine about increased funds flow to the real estate companies as the issue is not merely one of liquidity but related to the portfolio quality," says Sridhar.
For real estate companies, the only way to attract liquidity into the system seems to be to pin their hopes on prospective buyers queuing up at the sales counter. "The signal will serve as a boost for the sector with sentiments of buyers turning favourable. Banks may pass on the benefits to the consumers by easing off the lending rates. Home loans may get cheaper, facilitating the buying decision of the consumers," says Gaurav Mittal, Managing Director, CHD Developers.