Friday, July 4, 2008

Banks encourage prepayment on home loans, waive penalty

Tight liquidity conditions and High cost of funds:

This move by banks follows increases in the repo rate, or the rate at which the central bank lends money to banks, and the cash reserve ratio, the percentage of deposits banks must keep with the central bank, two weeks ago.

With access to funds growing more expensive, most banks raised their lending rates 50 basis points to 100 basis points. SBI raised its rates by 50 basis points last week, and ICICI Bank and HDFC by 75 basis points.

Analysts said banks are looking at aggressively encouraging part-prepayment because of tight liquidity conditions and the high cost of funds. "Such prepayments will help banks to access cheap funds from consumers that can be redeployed to high interest earning segments like personal and corporate loans," said a banking expert.
Business Standard

1 comment:

  1. Sensing a correction in the real estate sector, commercial banks have become selective in lending to new residential and commercial real estate projects. Besides increasing the lending rates, some banks have asked the promoters to increase their share in project funding in an attempt to mitigate the associated risks. Banks have already turned selective in taking up new funding proposals. The Reserve Bank of India has already declared the real estate space as a sensitive sector under its prudential norms. The sector thereby attracts higher risk weightage (banks have to set aside higher amount of capital for real estate exposure) and the lending is closely monitored. Keeping with the rising cost of funds and the need for additional capital for risky assets, the banks have increased the lending rates for real estate projects. The real estate companies are now paying prime lending rates (PLR) for new projects. The growth in loans to commercial real estate remained high, notwithstanding some moderation, RBI said in its macro-economy report for 2007-08.For more view-