Cheaper interest rates fail to spur home loans demand

One of the side-effects of Prime Minister Narendra Modis demonetisation drive that led to massive influx of bank deposits was latter lowering interest rates for loans, especially home loans. 

With scheduled commercial bank's (SCBs) loan growth reduced to 7% as on December 31, 2016, compared to 12.1% growth recorded in September 2016 quarter, analysts expected MCLR cut to act like a shot in the arm for home loans. 

To spur this credit demand, banks undertook steep cuts in their MCLR and home loans interest rate in the month of January 2017.

MCLR refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. Usually banks revises their lending rates every month. 

In the first week of January, State Bank of India (SBI) took the lead by making 90 basis point revision in home loan rates. It was soon followed by other public and private banks where rate cuts in the range of 10 basis points to 90 basis points were undertaken.

A research report of ICRA said, “Declining interest rates, driven by demonetisation, will prompt existing bank borrowers to shift from base rate system to the new MCLR mechanism as it will help them reduce repayment cost.”

Ramaswamy Subramanian Co-founder and CEO at Finanzmart said, "In fact it is a good time for people who have taken home loan for last two-three years. As brings in possibility for the existing borrowers to shift their balance loan to their respective bank or any other banks for enjoying the benefit of lower rates.This will give substantial savings in their EMIs.”

However,  data compiled by the Reserve Bank of India (RBI) show there has been only Rs 1,900 crore rise housing loans of SCBs in January 2017 compared to previous month. Incidentally, this is also the lowest rate of increase in home loans over the past few months. 

As per the data, housing loans stood at Rs  8,21,600 crore in January compared to Rs 8,19,700  crore in December 2016.

However, housing loans performance in January is lowest on month-on-month basis over the past six months. Home loans grew by 0.23% (Rs 1900 crore) in January, while in December 2016 and November 2016, housing loan increased by 0.54% (Rs 4,400 crore) and 0.49% (Rs 4,000 crore) respectively. 

Moreover, in September 2016, housing loans were grew at 2.4% (Rs 18,900 crore) growth. 
 

On year-on-year (YoY) basis, SCBs housing credit growth has only grown by 13.5% in this month compared to Rs 7,23,800 crore recorded in the similar month of previous year. 

Arun Jaitely's move for affordable housing announced in Union Budget 2017-18 with with 39% higher allocations vis-a-vis FY17 under the Pradhan Mantri Awas Yojana (PMAY) is also seen as a booster for home loans. 

ICRA, in its report said, "Demand for affordable homes is set to stay healthy, with the market poised to hit the Rs 6.25 lakh crore mark by 2022."