Home loan rates to be cheaper by 50-75 basis points

The New Year is likely to bring in some good news for home loan borrowers as most market players are anticipating a slash in the interest rates on home and personal loans. However, auto loan rates may remain intact, they say.

Bankers expect the Reserve Bank of India (RBI) to cut key interest rates during its monetary policy meeting on January 30, as the bank has been successful in fighting inflation and lowering credit growth.

"We expect an interest rate cut by the apex bank by the end of this month as banks are seeing a slackly credit growth. Following this, one can expect some respite in home loan rates as there will be some correction," said Ashvin Parekh, partner and national leader of global financial services at Ernst & Young.

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Parekh expects home loan rates to drop by 50-75 basis points during this quarter, the last of this financial year.

Rana Kapoor, managing director & CEO, Yes Bank concurs. "Interest rates on home loans have peaked. While there might not be a reduction in the interest rate in January, there could be a slash in the interest rate during April by half a per cent," Kapoor said.

Talking about auto loans, bankers feel auto loan rates will remain where they are for the next 3-4 months, as they are witnessing a lacklustre demand for the same.

"We do not think interest rates will come down immediately. While the demand for car loans is still satisfactory, demand for two-wheeler loans is almost nil, due to high interest rates," said Ashok Khanna, executive vice-president and business head in-charge of auto loans at HDFC Bank. Khanna is confident that auto loans will not become cheaper but remain stable for now.

A senior official from a mid-sized private sector bank, who requested anonymity, backed Khanna's view. They too are seeing a lull in the demand for auto loans, owing to high interest rates. "While the four-wheeler segment looks somewhat healthy, demand two-wheeler segment looks unhealthy," said the official.

Demand for personal loans also is on the lower side and analysts are expecting a slide in rates, to help boost demand.

"During the first half of the year, we see bank credit diverted into sectors like agriculture and small and medium enterprises rather than personal loans," said Aseem Dhru, executive vice-president and head of business banking with HDFC Bank.

Ernst & Young's Parekh too expects personal loan issuances to dip, though interest rates will come down.

Lower interest rates will also help reduce default cases. "The default rate in case of personal loans is as high as 10 per cent for some banks. We think that lower interest rates will lead to lower defaults on personal loans," said a banking analyst.

ICICI Bank, India's largest private sector player, last year saw a substantial rise in delinquencies in its personal loan portfolio and a smaller rise in its home loan portfolio. "Due to high interest rates on loans, we have seen a rise in personal loan delinquencies, especially in the credit card portfolio. Again on the home loan side, there was a small rise in delinquencies, on account of people finding it unmanageable to repay their loans due to high rates on their homes," said a senior official of ICICI Bank, who did not wish to be named.

Public sector banks, however, are wary of a rate-reduction, and feel they will suffer losses from such a move.

"Even if there is a cut in the interest rates by the RBI, lending rates may not come down significantly as our cost of deposits are still high. We will suffer huge margin losses if reduce interest rates, as deposit rates have still not eased," said a senior official from a public sector bank.


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Horizon Bancorp increases loan loss provision for Q4

Horizon Bancorp (HBNC.O: Quote, Profile, Research) said it increased its loan loss provision for the fourth quarter to address credit quality deterioration in its wholesale mortgage and indirect auto loan portfolios.

Horizon increased its provision for loan and lease losses expense by $1.4 million and the total provision expense for the fourth quarter is now expected to be about $1.8 million, the bank holding company said in a statement.

Despite the additional charge, Horizon said it expects 2007 earings will exceed those of 2006.

(Reporting by Sweta Singh; Editing by Gopakumar Warrier)

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http://www.reuters.com/article/bankingfinancial-SP/idUSWNAS542520080102

Accrington re-sign Todd on loan

Accrington Stanley have re-signed winger Andy Todd on a one-month loan from Rotherham.

Todd joined Stanley on loan from Burton in January 2006 before making the move permanent in the summer.

The 28-year-old played in every league game for Stanley last season before joining Rotherham in the summer.

However, he has been restricted to just 12 starts for the Millers and returned to Accrington in time to play in their New Year's Day defeat to Bradford City.



http://news.bbc.co.uk/sport1/hi/football/teams/a/accrington_stanley/7167702.stm