HDFC Bank warns of a sub-prime crisis if interest rates are lowered
By Joseph Samson
Nov 27, 2007
Print    Email    RSS   

New Delhi: HDFC Bank's MD Aditya Puri, has warned of a brewing sub-prime crisis if banks continue the practice of lowering the interest rates in order to attract more customers. According to him this could lead to a higher default rate in future.

“I think that you would be taking too much credit risk if you induce interest rate to the lowering; you might end up with the crisis like the rest of the world. So I think that it has to be judicious, that the people with borrowing capabilities must have money and trying to push credit based on low interest rates that do not reflect the economy, may not be the best,” he added.

After the rate hike by the Reserve Bank of India, the interest rates on home loans and other retail loans had skyrocketed, thereby putting enormous pressure on the borrowers. This had led to a high incidence of defaults and loan off-take had also reduced drastically. With borrowers nowhere in sight and the pressure to perform mounting up, banks had to lower their interest rates. This was done without any comparable reduction in the rates by RBI.

Almost every bank rushed in with attractive festive offers in October, to grab their share of festival spending and new customers. With no respite from RBI in terms of interest rates, banks still maintained the interest rates on various loans at pre- RBI monetary policy review levels. Banks had to lower their margins in order to attract more customers.

ICICI Bank, which had earlier offered its festival discounts up to 31 October, increased it indefinitely to compete with SBI's offer, which offered reduced interest rates to new customers till 31 December. Though, the increase in CRR by RBI is causing cash crunch for small players, larger banks are willing to fight it out. There are no indications of an upward revision of interest rates on home loan and other retail loans. On the contrary there are some banks, which are willing to go a step further by giving additional discounts on their loans, to bring in more customers.

(Comments Posted : 0) Post Your Comments
Show All Comments
 Select a product:

 Select a product:

Make your home loan repayment easier
Evaluate Hidden costs before buying a house
Mortgage insurance’s relevance in India
Financial Review: A must for every individual
Admissible deductions under Section 80C

PINJORE: CaℒL Giℛℒs In PiNjOrE 09915787550...
PINJORE: CaℒL Giℛℒ In PiNjOrE 09915787550...
how to gate my home loan certificate

Canara Bank earned a profit of 60%. Feb 6, 2015
New Branch of Laxmi Vilas bank at Vijayawada Jan 30, 2015
Home loan EMIs expected to drop down Jan 21, 2015
Corporation Bank received MSME banking excellence award 2014 Jan 19, 2015
Home loan rates set to fall, after reduction in repo rate Jan 16, 2015
News Archive