Interest rate hike impacts home loans
Mumbai: With Housing Development Finance Corporation (HDFC) and ICICI Bank hiking lending rates more than half of the outstanding home loans have become more expensive.

HDFC raised interest rates by 75 basis points for new borrowers and by 50 basis points for existing customers. HDFC will now charge 11.25 per cent for floating rate loans and 13.25 per cent for fixed rate loans. These levels on fixed rate loans were last seen in 1999.

ICICI Bank, the largest private sector bank, had raised its consumer loan rates, including home loans by 100 basis points, for both existing as well as new borrowers last Saturday. The interest rate on ICICI's floating rate home loans now is 12 per cent and on fixed rate 14 per cent.

UTI Bank has also has announced a 100 basis points increase in its prime lending rate, while public sector banks are wait till the Reserve Bank of India (RBI) announces its 2007-08 monetary policy on April 24.

The current round of interest rate hikes follow RBI's decision on Friday to raise the level of cash balances banks need to maintain with it by 50 basis points to 6.50 per cent in two stages effective April 14 and April 28, and the rate at which it lends funds to banks for a day against government securities by 25 basis points to 7.75 per cent.

Officials at public sector banks, though worried at the impact of further rise in interest rates on the quality of home loans portfolios, feel there could still be some room for another 50 basis points increase in home loan interest rates.
Back to News Review index page  

'Currency spot market a must to turn Mumbai into global center'
New Delhi: If Mumbai has to become an international financial centre, the government would have to allow foreign investments in government securities, create a currency spot market and set up an exchange for trading in currency derivatives.

In a report on `Making Mumbai an International Financial Centre', a high-powered Expert Committee set up by the Government also suggested that foreign clients be allowed to buy unlimited rupee-denominated corporate bonds and those issued by sub-sovereign entities such as States and metropolitan administrations.

The report which has been submitted to the finance minister P Chidambaram, also said that the internationalisation of the rupee-denominated bonds would accelerate the emergence of Indian international financial centre (IFC) on the world stage.

The committee has made a case for immediate creation of a currency spot market, with a minimum transaction size of Rs 1 crore and accessible to all financial firms. The committee, largely comprising bankers, has suggested the creation of a rupee-settled exchange-traded currency derivatives market, with trading in futures, options and swaps on currencies.

The Committee has made a case for full capital convertibility to be achieved within a time-bound period of the next 18 to 24 months and by not later than the end of calendar 2008.

Moreover, the policy problems that have held back interest rate futures need to be rapidly resolved, the committee said.
Back to News Review index page  

Foreign investors may be allowed in as mortgage guarantors
Mumbai: According to draft guidelines issued by the RBI on mortgage guarantee companies, foreign investors may be allowed as "significant" investors in the proposed mortgage guarantee company subject to approvals from Foreign Investment Promotion Board /FEMA.

Certain conditions apply in this case like the foreign investor should be a well diversified entity in its home country, should be regulated by its financial regulator and have a good track record of operating as a mortgage company, said an RBI notification.

The RBI's guidelines come in the wake of the Finance Minister's announcement in the Union Budget that regulations would soon be put into place for the creation of mortgage guarantee companies for facilitating the growth of home loans.

According to the draft guidelines, a mortgage guarantee company should have a minimum net owned fund of Rs100 crore at the time of commencement of business, which should be augmented to Rs 300 crore within three years from the date of commencement of business, said the notification. The company would also be required to maintain 12 per cent of its aggregate risk weighted assets as the minimum capital adequacy ratio.
Back to News Review index page