Loans & Finances

"In the present market, fixed deposit is one of the most attractive and safest investment options for the customers. ICICI HFC offers its customers fixed deposits with triple benefits of safety, trust and returns. These deposits come with AAA and MAAA ratings from leading credit agencies CARE and ICRA respectively. These are the highest credit quality ratings and hence offer highest safety to its customers," the company officials said.

They said the company has annual, cumulative, quarterly and monthly income plans available for customer to choose from, as per their convenience. "It has a wide range of term, ranging from 1 to 7 years. The fixed deposits are available in more than 75 locations across India," they said.

To mention the ICICI Home Finance is a 100 per cent subsidiary of ICICI Bank. ICICI HFC is one of India's leading Home Loan providers. It provides end to end home solutions to make the entire home buying process easy, convenient and pleasurable for the customer.

"ICICI HFC provides gamut of services to individuals and companies in the real estate sector. It has a variety of options to choose from. Loans are offered for purchase of new homes, resale homes, land and home improvement. Besides this, the company also offers loan for purchasing commercial property and loan against existing property. The company also has a group of experts that guide you through retail and commercial property search," they said.

A source, who was present in the meeting, said the government accepted that real estate is an engine of growth. At a time when the economy is facing a threat of slowdown, the sector could be used to revive it. Chidambaram, it is learnt, told the delegation that the government will not only help infusing liquidity in the system, but will also work to bring down the interest rates.

In the last couple of years, realty has been affected adversely because of rise in interest rates, which went up from 8% to around 12%. The interest rate was increased because of the sharp rise in prices of real estate assets, which RBI thought could create a bubble. To discourage the price rise, RBI tightened the provisioning norms, making loans to the sector costlier. At the same time, in the last nine months, when the inflation shot up to cross 6%, level RBI started tightening liquidity to keep price rise under check.

The country's banking industry is set to witness a big rise in non-performing assets (NPA) - which means loans on which payments go missing because India Inc's 30 per cent decline in net profits in the July-September quarter signals an imminent rise in default rates, say industry insiders.

Bankers told Hindustan Times that they began to see default rates inching up from September.

"We are yet to see the worst. Corporates have shown signs of non-repayment and though a clear picture is yet to emerge, the going may become tougher for banks in the next few months," said a senior official at a private sector bank.

The total number of loss-making firms has also increased by about 30 per cent in the second quarter of the current fiscal as compared to the previous fiscal.

At present, the NPA level is about net 1-1.5 per cent - which means less than one in 50 loans or equivalent in loan amount fail to be repaid beyond a defined acceptable level of defaults. An account is classified as NPA if the repayment process of the outstanding amount does not start within 90 days.

In the last couple of years, banks public and private - have been able to reduce their level of bad assets due to robust recoveries. "Howevel: recoveries will be dismal with corporates registering their worst performance in a long time," another banker said.

A large number of small exporters have already started defaulting after they suffered a loss of over Rs 2,000 crore on account of the collapse of the forex derivative market. Banks have been directed by the Reserve Bank of India to transfer the bad assets into a separate account and carry on with lending.

Banks have indicated that they will not stop lending.

INDIA'S BANKS are accumulating bad and doubtful loans at a faster pace as the economy slows, and the trend may accelerate next year as small and medium enterprises, or SMEs, and households struggle to pay debts, bankers and economists say.

A Mint analysis shows that in the quarter ended September 30, the combined gross non-performing assets (NPAs) at the top 10 banks by market capital rose 7 per cent from the preceding quarter to Rs 35,290 crore. The pace quickened from a quarter-onquarter rise of 1.25% to Rs 32,982 crore in the preceding three months.

Year-on-year, the gross NPAs at State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank and Union Bank of India shot up 14.5 per cent.

As most public sector banks including State Bank of India, Punjab National Bank, Canara Bank have reduced their benchmark prime lending rates (BPLR), home loans are expected to get cheaper in the coming times. Bankers feel that home buyers should take advantage of this low interest regime that is likely to prevail in the economy.

Syndicate Bank's General Manager, B.R. Pai said, "We expect our home loan off take to increase by 22 percent y-o-y next quarter with the fall in interest rates." The bank faced a fall in its growth of home loans during the last quarter. In the last quarter growth of home loans disbursed by Syndicate Bank were only 18% against a 30% growth for the same quarter, a year ago.

There is an unexpressed demand for residential property that is going to increase the demand once liquidity crunch in the segment is resolved, said Kumar Gera, Chairman of the Confederation of Real Estate Developers' Associations of India (Credai).

C Abraham, General Manager of Union Bank feels that as the property prices are falling in the recent times, more genuine buyers will come to take home loans and therefore the home loan disbursals will rise.

"Even Union Bank has been given a mandate by the board to make property purchases for housing our staff and for long term investment purposes. Valuations are down considerably from ridiculously high levels," he said. The bank has cut its home loan rates by 50 basis points to 10.75%.

The recent measures by RBI to infuse liquidity into the system have helped to view a positive reaction in the market. Vijaya Bank's CMD, Albert Tauro said, "Demand waned for our home loans in the last few months. This is the right booster that we were looking for our home loan segment." During the last quarter home loan portfolio of Rs 4,000 crore grew by only 7%.

A.C. Mahajan, CMD, Canara Bank beleives that home loan portfolio of banks which have been falling will see a revival due to the rising demand that is likely to come in from risk-averse people.

However, an SBI official said that home loans disbursal in SBI may not see a huge increase. "Loan applications of people from sectors like IT which are seeing layoffs are being more carefully scrutinized to avoid defaults," the official said.

The largest lender, SBI will still move cautiously under the tough economic conditions that are ongoing in the system, added the official.

According to an official in the Prime Minister's committee of officers set up to deal with industry-related problems, the government may bestow industry status to commercial real estate making lending easier to the sector. The sector has been suffering due to fears of the real estate bubble bursting. In addition, officials in the committee have suggested that the credit risk assessment may be split into two -- one for the construction component and the other for land. If the two steps are taken, commercial lending rates for developers may come down.

"If a particular sector is treated as industry by the government, it becomes eligible for funding under the priority sector. The small and medium players in this industry will then be able to access a part of the funds that banks need to lend to priority sector as per the RBI guidelines," a senior banking official said. On the other hand, if the risk element is split into two, the credit risk assessment (CRA) attached to the sector will be pared and the collateral or back up that a bank needs to have while lending to this sector comes down. "While a higher risk element is attached to land, a lower risk is associated with construction. So far, the two are treated as one composite whole while assessing risk. So, we may consider a split to infuse activity in this sector," an official in the know said.

A large number of players including DLF's KP Singh had met the Prime Minister and Finance Minister to discuss the problem of fund crunch for the industry. "Housing and construction are important growth drivers in any economy. I have impressed upon the banks to deliver credit at the appropriate price after assessing the risk and the credit worthiness of the borrowers," Finance Minister P Chidambaram had said after a meeting PSU bank chiefs.

The move is being considered at the highest levels in the government, even though it may take some time to arrive at a result with the government keenly watching the credit situation at home and how the situation changes with the US economy now reacting to a new President-elect.

Housing finance companies (HFCs) may finally get some relief, with the National Housing Bank (NHB) considering various options for increasing their access to cheaper finance.

Sources close to the development said these measures include allowing the HFCs to access funds through external commercial borrowings. NSB is also considering a separate window for lending to these companies at a cheaper rate.

The maximum amount a company could raise through ECBs would depend on the net worth of the company.

Last week, RBI allowed banks to raise money through a special window to on-lend to non-bank financial companies (NBFCs), before allowing systemically important non-deposit-taking NBFCs to raise capital through Perpetual Debt Instruments that would be a part of their Tier-1 capital. As a temporary measure, RBI also allowed these NBFCs to raise short-term foreign currency borrowings to the tune of $10 million under the approval route.

In addition, he said, SBI, which has already extended loans worth Rs 5,000 crore to help cash-strapped mutual funds, will enhance lending to the sector and to non-banking finance companies (NBFCs). These moves follow the Reserve Bank of India's Saturday decision to allow banks to raise additional resources through the repo window (where RBI lends to banks) to meet the funding needs of NBFCs, which have been facing tight liquidity for the last 45 days.

"SBI has probably been the biggest lender to mutual funds over the last few weeks. We are pumping in money also because we have resources. In the coming days, we intend to provide additional assistance," Bhatt told Business Standard.

The bank has a statutory liquidity ratio ( SLR) -- the amount banks must mandatorily invest in government securities -- of close to 29 per cent, Bhatt said, adding that it could raise an additional Rs 25,000 crore or so if it decided to go up to the permissible limit of 25 per cent of net demand time liabilities.

A loan, which could be comfortably serviced at an 8% floating interest rate could cause substantial discomfort after the rates rise to around 12%.

For some, it could even lead to a problem in repayment. This scary scenario isn't all that rare. According to rating agency Crisil's forecast, the share of bad loans is likely to swell to 4% of banks' total loans in the next two years.

In case of a default, it is best to approach the lender for an amicable settlement. If all the efforts undertaken for repayment fail, the lender is likely to take over and sell the mortgaged property.

No doubt, it is very painful to let go of your prized possession, which you may have acquired with your lifetime's savings. However, in such circumstances, borrowers need to keep an eye on their rights, which provide adequate opportunity to repay.

As regulated entities, there are certain limits that banks cannot cross. For instance, RBI guidelines do not allow a lender to repossess without proper notice.

The central bank also has norms that are taken into consideration under specific circumstances. There is a well-laid out procedure for taking possession of the security, provisions regarding a final chance to repay and a procedure for sale. These are in addition to the strict guidelines for recovery agents.

Banks now want to ensure that even in the case of a sharp decline in prices and a default by the borrower, it should be able to recover the loan amount. Margin money is the percentage of purchase price that the buyer has to bring. The balance is provided by the bank.

However, the call for higher margins is likely to further depress the demand for residential property, at a time when high interest rates have already made house purchases expensive.

Many banks have already increased margin money by 5-25 percentage points depending on the amount borrowed. Country's largest lender, State Bank of India (SBI), for instance, now prescribes a margin money of 25% for loans up to Rs 30 lakh, compared with 20% earlier. For loans up to Rs 1 crore, SBI has increased margin money requirement to 30% from 20%, and for loans above that, to 40% from 25%.

"We have increased the margin requirement in order to secure our advances from any price fluctuation in the market. Also, the requirement of higher margin money would ensure that only reasonably sound and credit-worthy borrowers are provided advances. This in turn would help keep the risk lower," an SBI official said.

The new SBI rates are effective from October 10. At least two other large public sector banks have also increased the margin money requirement by 5-10 percentage points, while others are likely to follow suit. Officials of these banks were unavailable for comment.

Large private sector banks such as HDFC Bank and ICICI Bank have, however, not increased the margin money. Though they have tightened the prudential norms for giving loans and deciding the creditworthiness of borrowers.

"We have not made any changes in the margin money requirement for home loans as we have been fairly prudent in our lending process," an ICICI Bank official said. HDFC Bank officials said that there was no urgency to increase the margin money as most of the home loans in the past one year averaged around 65% of the property cost.

Moreover, the bank is taking stringent measures to ensure that only borrowers with sound repayment capacity are extended the advances.

The tightening of loan mechanism and higher margin requirement come at a time when the real estate sector is facing a severe demand crisis. Earlier, buyers could borrow almost the entire sale consideration, up to 85% of the price in loan and the balance for furnishing the house.

The buyers will now have to pay up to 40% of the price from their own pocket. This is sure to make home buying difficult.

These rates are the highest in the industry, but will not be applicable to existing customers.

The country's largest home loans provider increased rates on October 10, without making any formal announcement. The rate hike was discovered by some customers who went to I-HFC to take a home loan.

"We were not sent any mail as the bank has not increased the benchmark prime lending rate but has increased the margin," said a direct sales associate (DSA) of ICICI Bank.

"We were informed over the phone, 10 days ago." Said a ICICI Bank spokesperson: "As we are seeing an increase in our cost of funds, the same is being reflected in our lending rates." This hike comes at time when Reserve Bank of India (RBI) has been consistently lowering its policy rates, beginning October 6.

The Central bank reduced the percentage of money commercial banks have to keep with it as cash by 250 basis point (100 basis points make 1 percentage point). It later followed it with a 100 basis point cut in the rate at which RBI lends to commercial banks.

The country's largest lender, the State Bank of India (SBI), is likely to reduce retail home loan rates before Diwali while Punjab National Bank (PNB) and Union Bank of India (UBI) have already slashed rates by up to 50 basis points. But the rate cut of 50 basis points may not be applicable to all types of loans.

Although private home loan providers like HDFC and ICICI are planning to wait and watch as of now, a rate cut by market leader, the SBI, often has a ripple effect on many banks. UBI has cut rates by 50 basis points for loans up to Rs 30 lakh.

The rate cut for loans above Rs 30 lakh, however, will be only 25 basis points. Also, there is the possibility that for loans amounting to Rs 75 lakh and above, the rate cut may be even lower. Sources say some banks may even decide against cutting rates for loans above Rs 75 lakh.

Many banks, including SBI, have put a new ceiling of home loans above Rs 75 lakh; they prescribe a different rate structure for these loans. The government, however, recognises only two types of home loans, those below and above Rs 30 lakh. The former comes under priority sector lending. Also, rate cuts would not be applicable to commercial borrowers like real estate companies.

"Our bank is contemplating a rate cut following the recent measures taken by the Reserve Bank. Though the decision to reduce rates may come at any point in time, it's expected that the bank would take a decision after seeing RBI's half-yearly monitory policy on October 24," an SBI official said.

Banks are also following some tough norms. He said the bank is following stringent norms for deciding an individual's creditworthiness while allocating loans so that the bank does not fall into a subprime-like trap.

Finance ministry sources said the government is in constant touch with commercial banks to ensure easy liquidity for priority sector loans.

"The government and the central bank have taken a series of measures to infuse liquidity into the system and there is no reason that the banks should be wary of providing credit to genuine borrowers even after that," an official said.

Rs 1,00,000 crore into the country's financial system, SBI is finalising plans to slash rates after the credit review of the Reserve Bank of India (RBI) on Friday. Even though loans will become cheaper, the bank plans to tighten the criteria for lending to individual borrowers.

"With a cash deposit ratio (cash in hand plus cash with RBI) of 9.88 per cent and cash reserve ratio (the portion of deposits banks keep with the RBI) of 9 per cent banks were left with only 0.88 per cent liquidity to supply credit in the market a fortnight ago. But with the RBI, bringing down the cash reserve ratio by 150 and 100 basis points over two weeks banks can now lend easily to retail borrowers," highly-placed sources told The Indian Express.

The current cash reserve ratio is about 6.5 per cent giving banks head room to lend to the market. The CRR cut on Thursday by the RBI had injected a Rs 100,000 crore liquidity into the system. Though loans may become cheaper during Diwali, the public sector bank plans to further tighten norms for checking the credit worthiness of individual borrowers. "The SBI wants to make a thorough check of the financial capability of the individual to pay back, to avoid defaults in the current market scenario globally," an SBI official said. Union Bank of India (UBI) and Punjab National Bank have also lowered interest rates on home loans by 25-50 bps in the past one week.

"This is clearly a measure to ease monetary policy and ensure smooth functioning of financial markets to support growth," ICICI Bank joint managing director Chanda Kochhar said.

Banks may take a relook at their interest rate structure in a little while, Corporation Bank CMD B Sambamurthy told PTI here.

Describing the RBI move as one "in line with the various the recent measures taken," Sambamurthy said the liquidity problem has now been addressed to.

"With inflation declining and inflationary expectations also under control, banks might reduce interest rates, but it is still too early to take a call."

Dena Bank's chief P L Gairola said banks would look at their cost of deposits before deciding on their rates.

"Interest rates could move downwards but much will depend on the cost of deposits. Unless it comes down, lending rates will not fall," he said.

Conforming to the view, OBC executive director Ratnakara Hegde said, with the cut in repo, both deposit and lending rates would soften in the near future

Though assurances and guarantees have eased sentiments, bankers say aversion among banks to sanction fresh loans will likely continue until the liquidity scare well and truly ends.

Many banks are still busy borrowing large amounts from the Reserve Bank of India, while policy-makers in New Delhi ponder measures to keep the cash taps flowing.

"Nothing has changed on the liquidity front. What the RBI is trying to tell banks is that they should not deprive companies of pre-sanctioned funds, which rightfully should flow to them," said the chairman of a public sector bank, who did not want to be quoted.

The Reserve Bank of India (RBI) yesterday directed banks to disburse working capital and term loans to companies against the sanctioned limited. The central bank was responding to denial of credit to companies even in cases where the whole of sanctioned loans have not been utilised and all the terms and conditions of the sanction of the loans continue to be complied with.

"In view of the improved liquidity in the markets, the banks concerned are advised to review all such cases (sanctioned loans) and permit drawal of sanctioned limits, guided by their usual commercial judgment," the RBI said.

About half of the number of 78 banks are short of liquidity and continue to borrow large amounts of overnight money from the RBI.

On Tuesday, banks borrowed over Rs 62,000 crore from the RBI.

Banks' borrowings on this scale continues despite the cut in the cash reserve ratio (CRR), the share of deposits banks must park with the RBI, by 1.5 percentage points with effect from October 11, which infused Rs 60,000 crore into the banking system.

Some banks do have more than adequate liquid funds but are conserving it instead of lending to other banks, for fear of getting stuck in a crisis if liquidity situation suddenly turns devastating.

"The reasons for tight liquidity conditions in the Indian market in recent weeks are quite different from the factors driving the global liquidity crisis. Some reasons include large selling by foreign institutional investors (FIIs) and subsequent RBI interventions in the foreign currency market, continuing growth in advances, and earlier increases in CRR to contain inflation," said Roopa Kudva, Managing Director & CEO of CRISIL, the India subsidiary of global credit ratings firm, Standard & Poors'.

Between October and December, when almost 60 per cent of home-buying happens, banks offer discounts like reduced rates and waivers on administrative and processing fees to lure customers.

Most of the banks admit that tight monetary conditions are making things very difficult for them. "Given that there is a tight liquidity situation, there is very little chance of banks offering anything special this season," said a senior manager in a housing finance company.

Another home loan head of a private sector bank said that the banking sector's cost of borrowing was as high as 12-13 per cent. "In such circumstances, it is hard to think of any drop in rates," he added.

There could be some relief for buyers from builders though. At a recent meeting of the Maharashtra Chamber of Housing Industry (MCHI), a body of builders, proposals were mooted that developers should bear stamp duty, registration and floor rise charges. Also, it was advocated that builders should take upon themselves a part of the interest cost in the initial years to kick-start home buying.

The interest rate now is 10.5-11 per cent on deposits of Rs 1-5 crore as against 9 per cent earlier, and it is 10.5 per cent for deposits up to Rs 1 crore in place of 8.5-9 per cent earlier, according to the branch manager of a large public sector bank.

The situation is no different in other banks. The Delhi Development Authority (DDA) is a case in point. Application money was financed by banks at 10 per cent interest rate, but the DDA was seeking 11.5 per cent for depositing the same money in banks, said a senior official of another public sector bank.

In fact, public sector banks, including State Bank of India, have raised resources at 11-11.5 per cent interest from the market to lend to state-run fertiliser companies at 13.75 per cent. Under an arrangement facilitated last month by the Finance Ministry and the Ministry of Steel and Fertiliser, SBI would contribute Rs 12,000 crore loan out of a total of Rs 20,000 crore being provided by public sector banks to bail out fertiliser companies hit by liquidity crunch, a banking industry source said.

The tight liquidity conditions have kept some banks from rolling over existing short-term loans to companies, especially public sector undertakings, once these loans mature.

Such banks, including the country's largest bank, State Bank of India, have decided to reduce the flow of loans with tenure of up to 12 months and instead focus on sanctioned credit limits.

During the last 15 days, there has been intense pressure on banks' resource management. At the same time, the cost of deposits has also shot up in the current quarter.

"This has forced banks to change the way they deal with the short-term credit business," said the head of corporate credit at a large Mumbai-based public sector bank.

When there was surplus cash in the system, banks were offering short-duration loans (30-60 days) at rates in the range of 7-9 per cent. These rates were lower than what they charged for sanctioned credit lines.

TAP RUNS DRY

• Banks are under pressure to manage resources judiciously
  
• Cost of deposits has shot up this quarter
  
• Companies have been found using short-term loans for interest arbitrage
  
•  Global financial meltdown and economic uncertainty has made banks cautious

The Promoters and Builders Association of Pune (PBAP) has tied up with ICICI Bank to offer home loans at 10 per cent rate of interest, which will be applicable for 24 months after booking.

As per this agreement, the ICICI will charge 12.5 per cent rate of interest on home loans, out of which, the flat buyer will pay for 10 per cent of interest rate while the remaining would be taken care by the respective real estate developer. PBAP president Lalitkumar Jain announced this scheme expressing concerns over the recent slowdown in the real estate sector.

"The boom in real estate sector in Pune is over and the market has stabilised. The demand for 1BRHK flats is increasing on a steadfast note in Pune. A major problem is the higher rate of interest on home loans and hence, we are trying to address the same," Jain said.

The scheme will be available between October 3 to 5 when PBAP will organise its annual real estate exhibition in Pune.

State lender Punjab National Bank (PNB) has taken a lead and has stopped giving such loans, while Bank of India, Bank of Baroda and Indian Overseas Bank have decided to go slow on such loans.

While banks have always been cautious and selective on real estate loans, this is the first time a bank has taken a decision to avoid this business. Banks' real estate exposure include loan against property, and loans to builders. Although home loans are a part of real estate exposure most of them constitute priority sector loans and are not a part of bank's exposure to sensitive sector.

Loan against property, popularly known as mortgage loans, is mostly availed by small businessmen and trader community. Officials from PNB say the decision was taken a few days ago. Other banks have been going slow on such loans for the past few months, although they have not completely stopped it.

Bankers point out that this section of borrowers is typically the one which does not have a balance sheet culture. This makes it difficult for lenders to foreclose a property.

To keep inflation under check, Reserve Bank of India has hiked short-term lending rate (REPO) five times and mandatory cash deposits that commercial banks have to keep with the central bank 13 times since January 2007. These hikes in CRR and REPO rate have drained out about Rs 8,500 crores from the banking system and in turn raised the lending rates of the banks.

The hikes in housing loan rates have upset the calculation of most of the borrowers. The interest rates in this segment have risen to 12 percent from 7 percent in the recent past and thereby the EMI installments have also gone up.

These hikes have witnessed an increase in the number of borrowers asking banks for foreclosures and partial repayments. However one needs to realize the impact of such a decision. Foreclosure or partial payment could affect the liquidity adversely in the short to medium terms.

Foreclosure/Partial Repayments is the legal proceeding in which a mortgagee, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption.

Most of the home loan borrowers are now opting to reduce their loan tenure which has been extended due to the hikes in interest rates. These borrowers are the ones who have taken their loans under the floating rates and are running fast to make huge payments.

Over the last couple of years, the interest rates on home loans have gone up by almost five percent - from seven to 12 percent. As such, the EMI instalments have also gone up significantly, upsetting the budgets of people.

There has been a quantum jump in the number of home loan borrowers approaching banks for foreclosures and partial repayments. Many borrowers are trying to reduce the term of their loan, which have increased due to the recent interest rate hikes. These borrowers are typically the ones who have taken floating rate loans in the last 12-18 months and are now trying to make balloon payments. With interest rates on home loans rising in the last one year, consumers are now looking at other options to acquire funds for their investments.

Before deciding to foreclose, one needs to understand the implications - both present as well as future. It can hurt their liquidity in the short to medium terms, if they decide to foreclose their home loan accounts or make partial repayments.

With the increase in EMIs, many borrowers are exploring the option to pre-pay the housing loan. Before deciding whether to pre-pay or not, one should work out the net cost of the home loan. This can be done by factoring in the income tax benefit on the housing loan interest.

Normally, banks do not charge anything in case the loans are being repaid from one's own sources. However, in case one goes for refinancing, i.e. borrows from some other bank, then a prepayment penalty is levied.

According to industry estimates, the home loan market witnessed an average growth of 20-25% in August, thanks to small-ticket buying. And with festive season around the corner, housing finance companies are gearing up to meet an increased demand as they expect real estate developers to dole out huge discounts to lure first-time buyers.

Banks across the board confirmed that they have witnessed a considerable increase in the number of queries from people seeking home loans. "These are typically the ones who are looking to buy residential property in the festive season. They have already been assured by real estate developers of a good discount, and are making now sure that they get their documents ready in time," a senior banker explaining the phenomenon said.

FCNR (B) Scheme's interest rates for dollar deposits with maturity tenure between one and two years have been reduced from 2.50 per cent to 2.46 percent.

The rates for dollar deposits with maturity period between 2-3 years, 3-4 years and 4-5 years have also been slashed down. For maturity between 2-3 years rate is 2.56 per cent while for 3-4 years and 4-5 years the rates are 2.88 per cent and 3.10 per cent respectively.

The rates for dollar deposits with maturity period between 2-3 years, 3-4 years and 4-5 years have also been slashed down. For maturity between 2-3 years rate is 2.56 per cent while for 3-4 years and 4-5 years the rates are 2.88 per cent and 3.10 per cent respectively.

The NRE deposit scheme interest rate has been reduced to 3.21 per cent for 1-2 year deposits. Those with a maturity of 3-5 years will yield an interest rate of 3.63 per cent.

Presently the bank is offering credit cards, auto loans, home loans, personal loans, fixed deposits, saving account and education loan to its customers and is unlikely to raise interest rates for the next 5-6 months even if the central bank raises its key lending rate.

The state-run bank chief, K.C. Chakravorthy, said an increase of 50 basis points in CRR or an increase of 25 basis points in the repo rate would not affect the bank's margin by more than 10-15 basis points.

The bank expects to achieve its net income targeted growth by keeping its interest rates constant except for non-resident schemes.

Mr Harpreet Singh, Business Director (Wealth Management, Distribution and Loans), Centurion Bank of Punjab, agreed that there has been a slowdown in FCNR deposits in the last few months. "The interest rate differential is not much as the RBI policy does not encourage very high rates. In our experience lot of NRI customers have diverted funds into real estate, though not much to equity," he said.

ICICI Bank, the country's second-largest mortgage lender, says it has witnessed a 15% jump in foreclosures following interest rate hikes, as more borrowers want to pre-pay home loans to avoid higher interest burden. The bank feels there has been a 35% decline in home sales in the past 18 months. This drop does not take into account the impact of the latest round of rate hikes.

"Unlike in the US, where foreclosure would mean borrowers sending keys to the banks, here it's complete payment of loan before schedule. As interest rates rise, borrowers tend to go in for pre-payment," says ICICI Bank retail asset head Rajiv Sabharwal.

ICICI Bank has hiked home loan rates twice in a little over past two months by 75 basis points. The bank is offering a floating home loan rate of 12.25% at present.

Mr Sabharwal says the bank hasn't seen a significant rise in home loan defaults, but has turned cautious towards lending as risk has risen. "We made our loan disbursal norms stringent as home prices went up earlier. With rates going up now, we are naturally being more cautious," he says. In order to ensure that the EMI burden doesn't rise so much as to force a home buyer to default, banks restructure loans, generally increasing the loan tenure.

The average tenure at ICICI Bank has increased from 13-14 years to 16 years in a year's time.

Meanwhile, a higher mortgage rate has also reduced a home buyer's eligibility to borrow. At ICICI Bank, a home buyer is now able to borrow 5-10% less than what he could have a year ago with same level of income. So while home prices have gone up in a year, a person's ability to buy a home has actually gone down. Thus, one could now afford only a smaller home than what he could have got a year ago.

Besides, ICICI Bank is now focusing on lending to end-users and not investors. "If you have bought a house to live in, you are more likely to continue paying EMIs even though interest rates go up," says Mr Sabharwal, indicating that investors were more likely to default.

Much of the investors have already exited or are on their way out from the real estate sector given the downturn, which is unlikely to give them any significant return.

Across the eastern region, REBI would open 200 stores, said Hemant Sikaria, regional head of REBI, on the occasion of launch of two-day expo, Franchise Expo 2008-09.

This would be a platform for entrepreneurs and business houses to explore business opportunities in real estate.

REBI was present in places like Bangalore, Bhubaneshwar, Chennai, Coimbatore, Delhi, Hyderabad, Jabalpur, Jaipur, Lucknow, Ludhiana, Mysore, Surat, Trichy, Truvandrum and Varanasi.

"India's realty segment is the only industry with a track record of 30-35 per cent growth per year in terms of investment. With the realty sector booming in east, we are confident that to be able to provide solutions to all real estate requirements of the people here," Sikaria said.

REBI provides a single window service for brokerage services, financial services, database services and relocation services.

REBI claimed it had tie-ups with organizations like KPMG and TCS to leverage on their business process validation and technology platform.

ICICI Bank Ltd., the nation's second-biggest bank by assets, slid 1.9 percent to its lowest in almost a month. HDFC Bank Ltd., the third-largest, dropped 1.5 percent after oil rose for a fourth day in New York. Inflation at a 16-year high is increasing the likelihood the central bank will raise interest rates for a fourth time since June.

``High oil prices and inflation are a cause for concern,'' said Mahesh Patil, who helps manage $9.6 billion in assets at Birla Sunlife Asset Management in Mumbai. ``There are no positive triggers in the near term.''

The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 115, or 0.8 percent, to 14,181.79 as of 2:18 p.m. local time, its lowest since July 29. The S&P CNX Nifty Index on the National Stock Exchange slid 27.35, or 0.6 percent, to 4,264.75.

Crude oil for October delivery rose as much as $1.10, or 0.9 percent, to $119.25 a barrel on the New York Mercantile Exchange, and traded at $118.60 at 2:38 p.m. Singapore time. India is Asia's third-largest oil consumer.

Higher oil prices, coupled with a global economic slowdown, may weaken expansion in India's $912 billion economy, Asia's third largest. A government report today may show that inflation quickened to 12.79 percent from 12.63 percent, according to a survey of economists by Bloomberg News.

ICICI declined to 637.35 rupees, its lowest since July 31. HDFC Bank, the third-largest, fell to 1,214.60, the most since Aug. 21.

Overseas investors sold a net 5.06 billion rupees ($125.4 million) of Indian stocks on Aug. 26, increasing their net outflow this year from equities to $7.17 billion, the nation's market regulator said.

Apollo Sindhoori Capital Investments Ltd. (ASCIL IN) gained 4.35 rupees, or 8.2 percent, to 57.30, the most since Jan. 11. The brokerage owned by the founder of Apollo Hospitals Enterprise Ltd. (APHS IN) said it would buy a majority stake.

DLF Ltd. (DLFU IN): India's biggest real estate company and Parsvnath Developers Ltd. were downgraded by Goldman Sachs Group Inc. to ``sell' from ``neutral.'' DLF declined 8.8 rupees, or 1.8 percent, to 470.05. Parsvnath slid 0.45 rupee, or 0.4 percent, to 112.

Marksans Pharma Ltd. (MRKS IN) gained 1 rupee, or 5.2 percent, to 20.35. The Indian drugmaker said it bought Relonchem Ltd., a U.K.-based generic drugmaker.

Recently, Anita Iyer, a senior executive in a private banking firm, gave up her rented apartment in Chembur and booked a flat in Kalyan in suburban Mumbai, where houses are available between Rs 10 lakh and Rs 20 lakh. She took a home loan of over Rs 15 lakh from the bank she works for.

Iyer is one among the so many homebuyers who are now looking at the affordable housing segment in times of inflation, interest rate hikes and slowdown in the economy. In turn, they are keeping the home loans market afloat even though soaring interest rates are threatening to slow the business down.

Pan-India, housing loan disbursements for residential and commercial developments have gone up by 15.4% year-on-year in the quarter to June. Housing loan majors such as ICICI Bank, Housing Development Finance Corporation (HDFC) Ltd, LIC Housing Loans, State Bank of India, which together control 83% of the market, have seen a substantial rise in their loan disbursements. In its result statement, HDFC Ltd said its loan portfolio for the June quarter stood at Rs 78,623 crore, representing a growth of 30% year-on-year.

A research analyst from a foreign brokerage said that during the first quarter of FY07, major banks together lent around Rs 11,800 crore, which fell to Rs 11,400 crore in FY08. "This picked up again to nearly Rs 13,100 crore in the first quarter of FY09, mainly driven by the affordable housing segment," the analyst said.

However, the demand for home loans needs to be matched with supply in the affordable homes segment, said a senior official at a leading private sector bank.

"There is a growing consensus among increasing number of policy makers that RBI has over-reacted by infusing strong doses of rate hike in the economy," a well informed Government source told The Pioneer, adding, "it is safe to presume that the RBI may not increase interest rates any further."

"The RBI had limited options and tightening monetary tools was the easiest. However, if one steps into RBI's shoes, it cannot be said that RBI has over-reacted by infusing doses of rate hikes," Director, Research Economist Intelligence Unit Manoj Vohra said.

This augurs well for all the stakeholders in the Indian economy. On one hand, the aam admi can expect the costs of credit to stabilise be it the auto loan, home loan, or any other loans. On the other hand, the industry may not postpone viable projects due to escalating credit costs.

On the macro side, the interest rates having peaked can provide much sought relief to the struggling financial markets, weakening rupee and address the slow down in the industrial engines of growth.

According to industry estimates, the number of home loan borrowers making foreclosures and partial repayments has almost shot up by 20-25% during the past few weeks.

In the last two months since the home loan rates started their northbound journey, all home loan financing companies' repayments and foreclosures teams have been actively engaged in counselling their customers, making them understand the pros and cons of the decision to forego or go for partial repayment of loans. It may be mentioned that the Central bank's latest CRR hike has sucked out about Rs 8,500 crore from the banking system.

Uday Sareen, country head, retail banking, ING Vysya Bank, told SundayET that the bank has seen a considerable increase in the number of queries for foreclosures and partial repayments. "In fact, the foreclosures have seen an increase of almost 10% over the previous quarter.

"Many banks have raised their BPLR (benchmark prime lending rates) by 0.75 per cent to 1 per cent, but all existing home loans, all new home loans up to Rs 30 lakh, existing automobile and educational loans are being spared from the hike," the finance minister, Mr P Chidambaram, said after reviewing the public sector banks' performance here today.

This was the finance minister's first meeting with bankers after the apex bank raised the key policy rate to nine per cent following which most PSU banks, including the largest lender, State Bank of India (SBI), hiked their lending rates by 50-100 basis points.

Referring to undue competition among banks to take bulk deposits from public sector organisations, the minister said he would ask the Department of Public Enterprises to instruct public enterprises not to resort to the bidding route, and deposit 60 per cent of their surplus funds with the public sector banks.

 Sample this: During the last four years alone, the interest rates on home loans have almost doubled from 7% in 2004 to 12-14.5% (even in floating loans) now, while the loan tenure has already gone up from 20 to 40 years in many cases.

And if this was not enough, another around of hike seems to be in the offing in view of a further possible rise in the CRR and repo rates. Considering that home loans are typically big-ticket liability, even a small hike in interest rates plays havoc on the personal finances of most households, because finances are already stretched while buying a house.

Take the case of Delhi-based IT executive Manish Malhotra, for instance, who had bought his house a few years ago on a floating rate loan of Rs 25 lakh for a 20-year tenu