Today, an average person is borrowing 2.7 times his annual income for a home loan. It used to be 3.8 times in 2010, says Ashwini Kumar Hooda, Deputy MD, Indiabulls Housing Finance. Hooda tells ET Now that even 200-250 bps hike will not disturb demand.
Over the weekend, various banks hiked their MCLR. Considering nearly 34% of your borrowings come from banks, are you going to see an impact on your cost of funds and spreads?
Housing finance companies borrow a part of their funds from banks and part of their money from the bond market. We have seen interest rate go up in both these markets. MCLRs have gone up by 20 to 30 bps over last four-five months whereas bond market yields have spiked up anywhere between 60 and 100 bps. This increases our costs but as we are able to pass all this cost increase to our customers where 99% of home loans are in floating rates structure. So, the spreads remain stable but the higher cost gets passed on to the customer. While these costs might pinch them a bit, they still enjoy one of the lowest rates on the home loan, factoring in the tax benefits and the PMAY Scheme. Their effective cost is very low and hence they should be able to absorb this.
What has been the quantum of rate hike by Indiabull Housing?
Indiabulls Housing has increased its home lending PLR by 10 bps in line with the MCLR increased by the banks. We have a pass-through mechanism and whatever rate increase happen in the system, are passed on to our customers.
Are you likely to increase your lending rates in proportion with what will happen to MCLR? Today it may be synchronised but eventually on a one-year period, two-year period, will you be moving faster than banks?
We are one of the five financial groups in the entire country in the non-PSU space which enjoy AAA from CRISIL. We borrow very close to the best rate possible in the market. I do not think we will ever need to increase rates higher than what an MCLR or other leading housing player will increase and our rate increase will be exactly in line. The message to our customer and the promise to our customer is that your rates will never rise faster than the system.
Today a 10 bps is nothing, A 10 bps could become 25 bps, it could become 50 bps. In your experience, what is the quantum beyond which interest rates start hurting demand?
Our experience is it happens when interest rates start impacting affordability. Affordability today is at its best in India. Today, an average person is borrowing 2.7 times his annual income for a home loan, which used to be something like 3.8 times in 2010. So clearly, our affordability has improved so much that even 200-250 bps of increase this time, will not disturb the demand.
Last time interest rates went from 8% to 10.75%, it started impacting the demand. Now, we have come down from 10.75% to 8.5% and in the immediate future, there could be a probability of 50-100 bps increase which will have minimal impact on the demand for home loans.