The economic turmoil may throw up an unusual bounty for home, auto and corporate loan borrowers as banks try to keep growth buzzing – following a nudge from the finance minister.
Despite a severe credit crunch and with little room available to reduce interest rates, several government-controlled banks are looking at ways to boost retail credit to aid the domestic economy. Banks are in the process of firming up plans to provide a window of a few weeks during which they may offer loans for houses and cars at cheaper and discounted rates to customers. They are also looking to offer concessions on loans during the coming festive season.
With the benchmark 10-year yield on government securities (g-secs) hitting a five-year high of 9.27% per annum, there was little scope for rate cuts, said bankers. Since banks usually fix their lending rates based on the g-secs, as it is considered risk-free, this signals hardening interest rates or high loans for retail customers.
“So most banks are just looking at providing a short window with cheaper loans to garner customers,” a senior banking analyst who did not wish to be identified said.
The goodies may not be for long. “We have initiated a special scheme wherein we are offering discounted interest rates on housing and cars for a period of three months, the scheme is already on and we are happy with the response,” M Narendra, chairman and managing director, Indian Overseas Bank, told HT.
Read more: Hindustan Times
NRI alert: Best time to settle loans in India
For non-resident Indians (NRIs), it is the best time to prepay their home loans since the Indian rupee is in a free fall.
The rupee hit a new low of Rs17.26 against the UAE dirham on Tuesday morning, having fallen by almost 12 per cent or so against the US dollar since May this year.
Although NRIs stand to gain higher interest rates on their fixed deposits as local banks now offer over 9 per cent on three year deposits, financial experts believe increase in base rates by banks will hurt home loan customers who have taken loan at floating rate.
Jones Lang LaSalle India, a real estate consultancy, is of the opinion that NRIs should think of prepaying their mortgages.
“It makes sense for NRIs to prepay their home loans at this stage, since the rupee has already fallen enough to offer a significant advantage in this
respect,” Shobhit Agarwal, Managing Director – Capital Markets, Jones Lang LaSalle India, told Emirates24|7.
He, however, suggests that taking a speculative risk is not advisable.
Some UAE NRIs have already decided to clear their home loans, even if partially.
Abishek Vasant, who has purchased an apartment in Pune, says: “I want to reduce my debt and clear all my liabilities before I leave the UAE for good.
Read more: Emirates24|7
SBI, ICICI Bank may not raise home, car loan rates
Here’s some good news for you. Large banks like State Bank of India and ICICI Bank are unlikely to increase lending rates immediately despite a rise in interest rates in the money market. However, small and mid-size banks that have low retail deposits may come under pressure.
“At present, we are not looking at increasing rates,” said A Krishna Kumar, managing director, State Bank of India.
SBI’s stance on interest rates sets the trend for market as other major banks take the cue from it. However, your EMIs may rise if the Reserve Bank of India increases rates any further.
SBI has a current account to savings account (CASA) ratio of around 45%. A high CASA ratio helps banks to keep their funding costs low.
ICICI Bank refused to comment for the story but the bank largely depends on retail deposits for lending.
“Short term rates have increased but our incremental short term funds are very small. We will continue to watch market conditions, but with 71% of our deposits linked to retail it should not impact us,” Chanda Kochhar, MD and CEO, ICICI Bank, had said while announcing the result on August 31.
Read more: Hindustan Times
India Central Bank Intervenes to Ease Liquidity
India’s central bank said Tuesday it would repurchase government bonds to increase the availability of cash in the banking system, a step that appears to be a partial reversal of the slew of measures it took since mid-July to tighten liquidity.
In a late evening news release, the Reserve Bank of India said it would buy back 80 billion rupees ($1.26 billion) of government bonds Friday. Further repurchase will depend on evolving market conditions, it said.
It is important to ensure that the liquidity tightening doesn’t harden long-term bond yields and impact the flow of credit to productive sectors of the economy, the central bank said, referring to its buyback plan.
Since mid-July, the RBI has taken a number of steps to tighten liquidity in the banking system as part of its efforts to stop a free fall in the rupee currency’s value.
On July 15, the central bank put a limit on the amount of cash banks could borrow at its policy lending rate of 7.25%. It also asked banks to keep aside a portion of their deposits in cash on a daily basis, and started selling short-term cash-management bills to drain liquidity from the system.
The impact of these steps on the rupee was short-lived as it continued to fall as investors across Asia braced for a possible withdrawal of the U.S. Federal Reserve’s bond-buying program that has increased global liquidity in recent years. The local currency hit an all-time low of 64.11 to a dollar on Tuesday.
Read more: Wall Street Journal
Rupee fall boosts office deals
Recovery in the US economy and continuing rupee depreciation is leading to a spurt in absorption of office spaces, especially with regard to information technology (IT) and IT-enabled services (ITeS).
Both Bangalore and the National Capital Region (NCR), the main property markets for IT/ITeS, have had a manifold jump in such absorption in the June quarter. This comes as aggregate net absorption in the Asia-Pacific has declined 26 per cent on a yearly basis and was around 20 per cent below the three-year quarterly average. China and India accounted for nearly 80 per cent of the total take-up in the Asia-Pacific.
In Bangalore, the net absorption went up four times to two million sq ft in the June quarter, as against 580,000 sq ft in the March quarter. Overall vacancies went up to 6.8 per cent from 6.3 per cent earlier, according to Jones Lang LaSalle (JLL), a global property consultant.
Ocwen Financial Corporation, Matteos, Alstom, Disney, TRS Rentele Co, Amazon, Infotech Enterprises, STS Technologies, Xerox Innovation, AIG and Repucom were the main companies which leased spaces in Bangalore last quarter.
The NCR saw a 140 per cent jump in office absorption to 1.7 mn sq ft in the second quarter of calender year 2013 on a quarterly basis. This absorption was the highest in the past four quarters. The absorption levels went up mainly due to good take-up in Gurgaon and Noida. Net absorption in Gurgaon rose 105 per cent quarter on quarter, due to robust leasing activity. In Noida, healthy leasing in existing stock and pre-commitments in new completions contributed to take-up, reaching a 20-quarter high, JLL said.
Read more: Business Standard
Delhi-Gurgaon E-Way Verdict on August 22
The Delhi High Court is likely to give its verdict on the operation of Delhi-Gurgaon Expressway on August 22. It will be a tough job for the HC to pick an appropriate body to operate the expressway. Experts believe that the court has only three options to consider. The first option could be that the current concessionaire, Delhi Gurgaon Super Connectivity Ltd (DGSCL), gets sole operation rights as it holds the licence to operate the expressway and toll plazas for 20 years. The second option is to give control to the Infrastructure Development Finance Company, one of the project financiers. It holds around 76 per cent stake in the project. The third option is to give the responsibility to the Haryana government. According to DGSCL insiders, “ it’s a win- win situation” for them. “ If the verdict is in our favour, we can operate the expressway for 20 years as per the licence. If it is in favour of IDFC or the Haryana government, they have to pay ` 998 crore to DGSCL for the remaining 15 years,” a DGSCL official said.
Source: Mail Today