SBI Chief for Pricing Parity With HFCs on Home Loans

Mumbai: State Bank of India (SBI) chairperson Arundhati Bhattacharya on Saturday called for ending the "regulatory arbitrage" enjoyed by pure-play home financiers, which can lend below their prime lending rates whereas banks cannot.

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"If you ask me, there shouldn't be any regulatory arbitrage. Regulatory arbitrage always makes for an un-level playing field. And if you have a particular area that you are operating in, there should be level playing field so that the most efficient of them do the best job," Ms Bhattacharya told reporters on the sidelines of the Credai-BankCon summit here.

She admitted that the main reason for this arbitrage is the higher cost that housing finance companies pay for funds.

Ms Bhattacharya also pitched for the need of the controversial 'teaser' loans in the home loan segment as it helps borrowers reduce their interest burden.

"I still believe that there is a place for teaser loans, mainly because when people take loans, they need some breathing space in the initial days and as time progresses, the EMIs become easier (to pay) as salaries go up," Ms Bhattacharya said.

Within 2-3 years, the EMI does not hurt the borrower as in the first two years and so a variable EMI makes things easier, she explained.

Early this decade, the then SBI chairman Om Prakash Bhatt started off the trend of teaser loans, which after initial criticism was adopted across the industry.

But the then Reserve Bank of India Governor D Subbarao asked banks to end this, fearing a credit bubble and possible delinquencies as EMIs in teaser loans go up after the initial years of cheaper interest.

Source - TOI

ICICI raises spread, offers new home loans at 9.6%

MUMBAI: Following a 35-basis-point reduction in its base rate last week, ICICI Bank on Tuesday increased the spread on its home loans. The bank now offers home loans at 9.6% and 9.65% (100 bps = 1 percentage point). 

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The bank said it would extend home loans up to Rs 5 crore for women borrowers at 9.6%, a spread of 25 basis points over the bank's base rate of 9.35%. The earlier spread was 15 basis points over the base rate. The increase in the spread means that while the bank's base rate has come down by 35 basis points, its home loan rates for new customers come down by 25 bps. Similarly for other salaried borrowers, the home loan rate is 9.65% or 30 bps over the base rates. ICICI Bank's home loan rates are in line with those offered by HDFC but 10 basis points higher than what is offered by SBI.


While all new borrowers will be getting loans 25 bps cheaper than what was available earlier, older customers will see their cost of funds coming down by 35 basis points in line with the base rate. In other words, a woman who has borrowed last week will see the interest rate drop to 9.35% at the next reset. 

Axis Bank has matched ICICI Bank and HDFC, offering 9.60% rate for small home loans and 9.65% for big-ticket loans for the salaried. For the self-employed, the interest rates are 10 basis points higher.


Source - TOI

Deduction against home loan interest

Bangalore - You can claim deductions against both the interest component of your home loan and HRA, if you are staying in a rented house and buy your own home. 

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You can claim a deduction against the interest paid on a home loan taken for the purchase of a house. The principal amount in the repayment of a home loan can be added to the Section 80C limit of Rs 1.50 lakhs for tax saving. The interest component of a home loan is allowed as a deduction under Section 24 for up to Rs 2 lakhs in case of a self-occupied house. In case the house is in the names of your spouse and you (bought with a joint loan), each one can avail Rs 2 lakhs of the interest component as a deduction.

This limit is only for a self-occupied house. In case the property is rented out, you can deduct the entire interest paid on the home loan. The rent earned from the property is added to your income. If the rent received is lesser than the loan's interest, it will lower your overall tax liability.

In case a property has been acquired or constructed with borrowed capital, the interest payable on the amount borrowed for the period prior to the previous year in which the property has been acquired or constructed is also eligible for deduction. Such interest is deductible in five equal installments commencing from the previous year in which the house has been acquired or constructed. The first installment is deductible in the year in which the construction of the property is completed or the property acquired, and the balance four installments in the four subsequent years.

It is to be noted that the loan must have been taken to construct or acquire a house. In addition, the construction or acquisition of the residential unit with the loan should have been completed within three years from the end of the financial year in which the capital was borrowed. In order to claim the deduction you should furnish a certificate from the bank to whom the interest is payable on the capital borrowed, specifying the amount of interest payable.

Source - MB

RBI cuts repo rate by 25 basis points, EMIs likely to go down

MUMBAI: The Reserve Bank Of India (RBI) cut interest rates for a third time this year on Tuesday, taking advantage of subdued inflation  to give more support to an economy that many economists doubt is doing as well as latest impressive growth numbers suggest.

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The reduction in the repo rate will lower cost of funds for banks and is a signal to them to reduce lending rates. For individual borrowers, home loans and auto loans rates would come down. Announcing the rate cut the governor said that there were scope for further cuts if the monsoon was better than expected or if government took measures to offset impact of monsoon.

"Banks have started passing through some of the past rate cuts into their lending rates, headline inflation has evolved among the projected path, the impact of unseasonal rains has been moderate so far, administered price increases remain muted, and the timing of normalisation of US monetary policy seems to have been pushed back. With low domestic capacity utilisation, still mixed indicators of recovery, and sudu D investment and credit growth, there is a caw for a cut in the policy rate today"RBI governor Raghuram Rajan said.

The reduction showed policymakers recognised the need to put the economy on a sounder footing, regardless of data released on Friday that showed India outpaced China by growing 7.5 percent in the March quarter.
Many economists, inside and outside the government, suspect a new way used to calculate gross domestic product has overstated how fast India is rising.

"With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today," the RBI said in a statement.

Still, the RBI did not take any new steps to free up cash-strapped commercial banks' liquidity, which bankers had said were needed for them to lower lending rates further and pass on the benefits of monetary easing to the broader economy. Instead, the central bank urged lenders to lower their lending rates.

The RBI also warned it would closely track inflationary trends, citing risks posed to food prices if monsoon rains are weaker than expected, or global crude prices recover, or the rupee weakens due to volatility in global markets.

"A more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty. Meanwhile banks should pass through the sequence of rate cuts into lending rates," the central bank said.

The rate reduction answered calls from both the government and businesses for the RBI to do more to shore up the economy.

Corporate earnings have been dismal, growth in bank lending has been the lowest in almost two decades, and weak industrial output data is at odds with the strong GDP numbers.

Still, there are considerable hopes that Prime Minister Narendra Modi's economic reforms and aggressive spending on infrastructure will solidify the gains in economic growth.

Markets had already discounted a rate reduction and the after the move the broader Nifty stood 1.1 percent down from Monday's close. The rupee was little changed at 63.76 per dollar, having ended Monday at 63.72.

The latest rate reduction showed the central bank's confidence that that economy was in good shape to withstand any market turbulence when the Federal Reserve finally decides to raise interest rates, as it is expected to do later this year.

The RBI reduction came just weeks after China made its third interest rate reduction in six months, but growth in India's giant neighbour has been slowing down.

Having embarked on an easing cycle in January, the RBI's latest move completed a reversal of the rate increases ordered by Governor Raghuram Rajan between September 2013 to January 2014, when India was suffering double-digit inflation.

Under a new monetary policy framework adopted this year, controlling inflation is RBI's sole mandate. Weak global oil prices are helping the central bank to achieve its goals.

Consumer price inflation hit a four-month low of 4.87 percent in April, well within the RBI's target range of 2 to 6 percent, but the central bank on Tuesday projected a rise to 6.0 percent in January 2016.

Source : ET

RBI cuts repo rate by 25 basis points, EMIs likely to go down

MUMBAI: The Reserve Bank Of India (RBI) cut interest rates for a third time this year on Tuesday, taking advantage of subdued inflation  to give more support to an economy that many economists doubt is doing as well as latest impressive growth numbers suggest.

www.sevagiri.com

The reduction in the repo rate will lower cost of funds for banks and is a signal to them to reduce lending rates. For individual borrowers, home loans and auto loans rates would come down. Announcing the rate cut the governor said that there were scope for further cuts if the monsoon was better than expected or if government took measures to offset impact of monsoon.

"Banks have started passing through some of the past rate cuts into their lending rates, headline inflation has evolved among the projected path, the impact of unseasonal rains has been moderate so far, administered price increases remain muted, and the timing of normalisation of US monetary policy seems to have been pushed back. With low domestic capacity utilisation, still mixed indicators of recovery, and sudu D investment and credit growth, there is a caw for a cut in the policy rate today"RBI governor Raghuram Rajan said.

The reduction showed policymakers recognised the need to put the economy on a sounder footing, regardless of data released on Friday that showed India outpaced China by growing 7.5 percent in the March quarter.
Many economists, inside and outside the government, suspect a new way used to calculate gross domestic product has overstated how fast India is rising.

"With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today," the RBI said in a statement.

Still, the RBI did not take any new steps to free up cash-strapped commercial banks' liquidity, which bankers had said were needed for them to lower lending rates further and pass on the benefits of monetary easing to the broader economy. Instead, the central bank urged lenders to lower their lending rates.

The RBI also warned it would closely track inflationary trends, citing risks posed to food prices if monsoon rains are weaker than expected, or global crude prices recover, or the rupee weakens due to volatility in global markets.

"A more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty. Meanwhile banks should pass through the sequence of rate cuts into lending rates," the central bank said.

The rate reduction answered calls from both the government and businesses for the RBI to do more to shore up the economy.

Corporate earnings have been dismal, growth in bank lending has been the lowest in almost two decades, and weak industrial output data is at odds with the strong GDP numbers.

Still, there are considerable hopes that Prime Minister Narendra Modi's economic reforms and aggressive spending on infrastructure will solidify the gains in economic growth.

Markets had already discounted a rate reduction and the after the move the broader Nifty stood 1.1 percent down from Monday's close. The rupee was little changed at 63.76 per dollar, having ended Monday at 63.72.

The latest rate reduction showed the central bank's confidence that that economy was in good shape to withstand any market turbulence when the Federal Reserve finally decides to raise interest rates, as it is expected to do later this year.

The RBI reduction came just weeks after China made its third interest rate reduction in six months, but growth in India's giant neighbour has been slowing down.

Having embarked on an easing cycle in January, the RBI's latest move completed a reversal of the rate increases ordered by Governor Raghuram Rajan between September 2013 to January 2014, when India was suffering double-digit inflation.

Under a new monetary policy framework adopted this year, controlling inflation is RBI's sole mandate. Weak global oil prices are helping the central bank to achieve its goals.

Consumer price inflation hit a four-month low of 4.87 percent in April, well within the RBI's target range of 2 to 6 percent, but the central bank on Tuesday projected a rise to 6.0 percent in January 2016.

Source : ET