Soft interest rates coupled with a strong response to its earlier scheme has prompted HDFC to relaunch a limited period dual-rate home loan scheme. HDFC is now offering two-year fixed rate home loans (8.25% for 1st year followed by 9% for 2nd year) as compared to 8.75% floating rate (for loans up to Rs3 mn) offered currently. The scheme is currently available for limited period (loan applicants up to April 30, 2010) and we understand that the company has already tied up corresponding borrowings for the same, thus protecting its spreads. We believe that HDFC will extend the scheme if interest rates remain low.
We believe that excess liquidity in the system (investments under reverse repo are currently at Rs534 bn) is fueling the discount scheme and such schemes will likely be withdrawn when the excess liquidity in the system dries up. ICICI Bank and Axis Bank withdrew their discounted home loan scheme in March 2010, just two months within their launch, as liquidity had reduced.
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