India property loan rates: ICICI, HDFC differ in views

ICICI Bank and HDFC appear to differ on the potential impact of higher CRR (Cash Reserve Ratio) on India property loan rates.

Reserve Bank of India (RBI) announced yesterday that banks will have to increase Cash Reserve Ratio (CRR) by 50 bp (0.5%), effective from Novermber 10. This means that banks will have to keep this additional percentage of their deposits as non-interest earning amount with the RBI. This is expected to further reduce the amount available for lending.

However, leading banks seem to differ on whether this CRR hike will lead to higher property loan rates. ICICI Bank Joint MD, Ms. Chanda Kochhar feels that this amount of CRR hike can be absorbed and there should be no need for an immediate increase in property loan interest rates. On the other hand, she also clarified that the current low rates offered are only for the Diwali festive period and can be expected to revert back to the pre-festive rates after the assigned period.

Mr. Deepak Parekh, Chairman, HDFC, on the other hand mentions that there is enough liquidity in the system and further lowering of property loan rates cannot be ruled out.

Meanwhile, some public sector banks have acknowledged that deposit interest rates will need to fall further for banks to maintain margins. Interestingly, State Bank of India (SBI) seems to continue wanting to acquire larger deposit market share through attractive deposit interest rates.

This difference highlights once again an interesting arbitrage opportunity: consider taking property loans from HDFC and putting deposits with SBI. As both these giants remain keen to preserve/gain market share in different parts of the retail banking business, you as the retail customer may be able to drive a hard bargain if you are in the market for these products.