'RBI willing, interest rates will fall by up to 0.5%'

MUMBAI: HDFC, the country’s leading housing finance company, has said that interest rates will come down 25-50 basis points, if the Reserve Bank of India (RBI) does not raise interest rates or cash reserve ratio on January 29. The housing finance company said it would take a decision on rates after the RBI policy.

Speaking at a global trade and investment conference organised by the Indian Merchants’ Chamber here, HDFC Chairman Deepak Parekh said that a 25-50 bps fall in interest rates is expected, following the credit policy.
Incidentally, HDFC has extended a festival discount scheme, which was to end in December, till end-January. The company has also realigned interest rates in some categories, resulting in borrowers in the Rs 20 lakh to Rs 1 crore categories getting a 25-bps benefit in interest rates.
HDFC has been offering home loans at 10.25-10.5% as part of a festive offer, and the chairman’s recent comments indicate that these rates might continue for a while.

He added that the bank had seen a loan growth of 25% during the current quarter. “While property prices in the suburbs of Mumbai seem to have plateaued, rates in areas like South Mumbai and Delhi are not showing any such signs,” according to Mr Parekh.
Taking a cue from the Tatas’ latest people’s car, Mr Parekh said builders and the government needed to look at affordable housing as well. “With builders going in for more luxury housing, affordability seems to have been thrown out of the window. There is a need for disincentivising such builders by taxing them more,” he added.

Mr Parekh warned that the subprime crisis in the US might still have an impact on India. “India is resilient, but not immune to global events,” he said. A possible economic slowdown in the US could result in companies cutting down on their IT spends, thus impacting software development activities and outsourcing to India, he felt.

Speaking at the same event, Enam Securities chairman Vallabh Bhansali said, “The US is likely to go through a severe recession, and the domestic pressures resulting out of this will have some impact on the outward flow of dollars. However, on the flipside, the US could start saving more and rates could come down.”

However, a global slowdown will not affect the Indian economy as much as it will affect other Asian economies, including China, as India is not as dependent on exports, and has a significant domestic factor as well. The Indian markets will not see a flood of forex flows like in the past two years, with most investors booking their profits and there has not been a mobilisation of fresh funds, felt Mr Parekh.

The same view, however, is not held by Deustche Bank India CEO Gunit Chadha, who felt that the strong economic growth in the country indicates that forex inflows will continue to come in with the same pace as they have in the past.