The days of soft interest rates on home loans are over with HDFC, India’s largest home loan company, hiking the rate on its fixed-rate home loan products.The fixed-rate loans are now in a band of 7.75% per annum to 8.50% per annum based on the credit quality and loan product. Earlier, this band was 7.5% to 8.5%. The floating rate product and the retail prime lending rate have not been changed. HDFC has a market share of 20% in the home loan segment.Other banks are keeping their fingers crossed.When contacted, an official of the second biggest player, ICICI Bank, said that its rates are unchanged and no decision has been taken to hike rates. ‘‘We will change the rates only when we get a clear picture.but interest rates are looking up in the country,’’ said Bank of India chairman M Venugopalan.HDFC chairman Deepak Parekh had recently indicated at the company’s AGM that interest rates have bottomed out and rates could even rise slowly. Other bankers also warned of a rise in rates in the coming months.A statement by HDFC said that during last month the rates of interest in the economy have been showing signs of hardening and the inflation figures released last week also point in the same direction. ‘‘Though we believe the rates will remain soft in the short term, the long-term view is that the rates are likely to rise. This is reflected in the 10-year government securities rates which are quoting over 6 per cent,’’ HDFC said.But HDFC said when it lends at fixed rates for periods as long as 15 to 20 years we need to keep in mind the long-term outlook on rates in order to avoid any possible mismatch.‘‘Other players in the home loan market offer fixed-rate loans with a right to increase the rate in case of adverse money market conditions or even changes in their internal policies,’’ it said.‘‘We at HDFC are offering two options at differential rates, one where HDFC has a right to increase rates but only in the event of extreme volatility in the money market conditions and the other at a slightly higher rate where the rate is fixed for the entire term,’’ HDFC said.Banks and housing finance companies were engaged in fierce competition to expand their home loan portfolio. There were also undercutting of rates and offering of more incentives to lure potential customers. Banking regulator RBI had also stepped in and warned players to go by the rulebook.On Tuesday, HDFC closed 0.23% lower at Rs 572 on the BSE. The stock has fallen over 11% since the beginning of this year. With expectations of rising interest rates and strong competition in the segment, investors were cautious in investing in the company, say market analysts.The Rs 55,000-crore housing finance industry has been growing at a strong rate of 25-30%. Large players like HDFC have benefited from this robust growth and has disbursed Rs 12,696 crore of loans in fiscal 2004. Its cumulative disbursements are Rs 56,217 crore as of March 2004.
