LIC Housing Finance cuts interest rates by 0.75%

LIC Housing Finance (LICHF), the second largest home loan lender in India after Housing Development Corporation Limited (HDFC), has announced to cut the interest rates on all existing home loans for all maturities by 75 basis points (bps).

Decrease in the incremental costs of funds from 11% in October to 8.25-8.75% at present made LICHF to pass on the benefits of this reduction to the existing customers by cutting down the rate of interest on all sorts of home loans.

The state-run home finance company has decided to cut down the loan rates in the range of 10-10.50%. Moreover, LICHF has also announced a special floating rate on new home loans to attract more customers. For Loan amount up to Rs.30 lakh, Rs.30 lakh to 75 lakh, and above Rs.75 lakh, the new floating interest rates are 8.75%, 9.50-9.75% and 10.50-10.75% respectively.

The all revised rates would be effective from April 01, 2009 which payment would be paid on May 01, 2009, the company confirmed in a released statement.

This is for the second time in three months that LICHF has reduced the interest rate by 150 basis points in two tranches. Earlier in January, the housing loan firm had reduced the interest rate by 75 bps.

The combined reduction in the last three months is greater than the total increase of rates last year. In May, July and August last year, the company had increased the rate of interest by 25, 50 and another 50 bps for existing customers.

As it is expected now, this move of LICHF would force others lenders to reduce their home loan rates as they are only announcing attractive home loan rates to woo new customers but not to pass the benefits of profits turned up due to the lowering cost of funds.

Besides, LICHF and HDFC, other major market players in this field are ICICI bank, State Bank of India, Punjab National Bank and Industrial Development Bank of India (IDBI).

The market leader HDFC has recently announced a 150 basis-points cut in new loan rates that are 9.75% for up to 30 lakhs loan; and 10.75% for above Rs.30 lakh loans for the new customers, while for the existing customers, HDFC in last December had reduced loan rate by cutting its retail prime lending rates (RPLR) by 50 basis points with effect from December 22. The second round of cut is yet to be announced. Now, it can possibly come soon after the announcement of LICHF.