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ICICI cuts rate by 1.5%, drops pre-payment charges - Views on News from Equitymaster
 
 
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  • Jan 21, 2000

    ICICI cuts rate by 1.5%, drops pre-payment charges

    ICICI has slashed interest rates on five-year home loans by 1.5% to 12% from the existing rate of 13.5%. In addition to the reduction in interest rates, ICICI has also waived off the pre-payment charge of 2% on home finance loans to customers who part pay or fully repay their loans before maturity.

    According to Mr. Atul Jog, business head (mortgages) ICICI, all loans having a five-year maturity, irrespective of whether or not a customer is resident Indian or a non-resident Indian will be offered at 12%.

    ICICI's decision to cut interest rates comes close on the heels of a similar announcement by HDFC, which cut its interest rates for non resident Indians by 1%. However, HDFC's interest rate on five-year home loans for resident Indians, however, remains unchanged at 13.5%.

    The housing companies seem to be going in for another round of rate cuts on housing loans, especially in view of the government's decision to reduce the interest rate on PPF and small saving by 1%. The trigger for the rate cut, as in the previous year, has been provided by HDFC.

    ICICI decision to drop the pre-payment charge marks the departure from the industry norms, as pre-payment charges are predominantly a feature of home finance companies. The purpose of this charge is to provide a hedge against market rate fluctuations and balance transfer.

    The housing finance sector is witnessing hectic activity with banks joining the fray and other companies like Sundaram Finance having announced their plans for the sector. The aggressive stance adopted by ICICI can be viewed as a move towards gaining market share in an increasingly competitive environment.

    Indian are traditionally debt averse and if there is any financial obligation, the tendency is to pay it off as soon as possible. ICICI's decision to drop pre-payment charges will certainly encourage the customer to pre-pay. Other Indian major players who do not have pre-payment charges are GIC- housing finance and HUDCO.

     

     

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