The home loan borrowers finally got some reason to cheer when PSU banks reduced the interest rates for home loans up to Rs 20 lakh, on government's behest. Now even some of the housing finance companies (HFCs) are following the leaders and planning to cut home loan rates under this category.

This move by the HFCs has added to the respite of new home loan borrowers, with a loan size of less than Rs 20 lakh. Specialized second-tier HFCs that are planning to announce a cut in the interest rates include Dewan Housing Finance (DHFL), GIC Housing Finance (GICHF), DHFL Vysya Housing Finance and others.

These HFCs are expected to reduce their rates for home loans up to Rs 20 lakh by 100 to 150 basis points. GICHF, which has a home loan portfolio of around Rs 2,800 crore has decided to cut the home loan rates by 100 to 150 basis points for the fresh home loan takers. The lender will offer loans below Rs 20 lakh with tenure period of 5 to 15 years and over 15 years at 10.25% and 10.5% respectively. Besides they are also planning to reduce the rates for existing borrowers. Nevertheless the rate cut for this segment of the borrowers will be slightly lower.

Similarly, DHFL is also expected to come out with special rates for both loans below Rs 5 lakh and loans between Rs 5lakh and Rs 20 lakh. However the financer has yet not made a formal announcement. DHFL Vysya Housing Finance, a subsidiary of DHFL also plans to offer special rates for fresh home loans.

These lenders are motivated to take such a move because PSU banks have reduced their rates for loans under this category. As per the government instructions, PSU have announced special interest rates for home loans below Rs 20 lakh and loans less than Rs 5 lakh at 9.25% and 8.5% respectively. Even the private home loan leader, HDFC Bank has reduced its floating interest rate to 10.25% for loans up to Rs 20 lakh and 11.25% for loans above Rs 20 lakh.

Meanwhile National Housing Bank (NHB) that provides refinance to HFCs has announced Rs 4,000-crore refinance facility at the rate of 8%. In addition there is Rs 2,000-crore refinance support for loans against rural housing projects. "As we have reduced rates, we also expect HFCs to reduce rates and pass on the benefits to end-customers," said NHB CMD S Sridhar.

Managing Director of GICHF, M Sivaraman said, "As we will get refinance from NHB at easy terms, we have decided to pass on the benefit to new customers from January 1."

However industry sources believe that HFCs can avail the refinance facility from the NHB only against the fresh disbursement made by them and therefore the benefit of reduced interest rates will only be limited to the fresh loans. Yet the lenders are giving concession on interest rates to the existing customers. For instance GICHF will reduce its interest rates for existing customers by 25 basis points.

Similarly Managing Director of DHFL Vysya Housing Finance, R Nambirajan said that his company is reducing the home loan rates for existing customers by 50 basis points. "Besides offering the special refinance scheme, NHB has reduced its normal refinance rates too. Both the moves will help lowering interest rates," he said.