HDFC to raise housing loan rates

Mumbai:
09 November 2004

The pressure on interest rates has been building up steadily in tandem with the hardening of yields in the domestic debt markets.

The 10-year benchmark government paper, maturing in 2014 with 7.37 per cent yield-to-maturity, jumped to 7.28 per cent, sharply higher than its levels in the first week of October at 6.45 per cent.

Added to this, the Reserve Bank of India (RBI), in the mid-term review of its annual policy statement, increased the risk weights that banks will have to assign on home loans to 75 per cent from 50 per cent and on consumer credit to 125 per cent from 100 per cent.

Industry analysts are of the view that the RBI's move addressed concerns of an "asset bubble" being created by banks aggressively lending in retail.

The increase in risk weights meant that banks would have to set aside additional capital for their retail portfolios, and it was inevitable that this cost would be passed on to customers.

But State Bank of India, the country's biggest commercial lender, is unlikely to raise home loan rates in the immediate future. Speaking to journalists on Monday, A K Purwar, chairman, SBI, said, "There is some upward pressure on interest rates and we are examining various issues."