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Business News › Wealth > Loan > HDFC Bank-HDFC Merger: What are the changes for HDFC Home Loans? Are home loan rates going down?
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HDFC-HDFC bank merger: What will change for HDFC home lenders? Are home loan rates going down?
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India’s largest private sector lender HDFC Bank is likely to complete its merger with its parent Housing Development Finance Corporation Ltd (HDFC) by June 30, 2023. The question is -now how will the merger affect lenders. ET Wealth encodes how HDFC home lenders are likely to be affected post merger
Existing HDFC home loan borrowers can benefit from the HDFC twin merger if the bank reduces home loan rates or offers other incentives after the merger.
India’s largest private sector lender HDFC Bank is likely to complete its merger with its parent Housing Development Finance Corporation Ltd (HDFC) by June 30, 2023.
Now the question is how this merger will affect lenders. The proposed merged entity will be called HDFC Bank. As for existing customers of HDFC Bank, there will hardly be any change. However, when it comes to the largest private housing lender HDFC, it impresses its borrowers.
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ET Wealth Online decodes how HDFC home lenders are likely to be affected after the merger.
How HDFC Bank and HDFC merger will affect HDFC home lenders? The home loan portfolio of housing finance company HDFC will move to the banking unit of HDFC Bank. Home loan comparison is different between banks and non-banking financial companies (NBFCs). From October 2019, banks must link the interest rates of all variable rate personal loans to external benchmarks. The external benchmark can be RBI repo rate, 3-month T-bills, 6-month T-bills or any other market benchmark published by Financial Benchmarks India Pvt Ltd (FBIL).
On the other hand, NBFCs are not required to link their retail loans to an external benchmark. So once the merger is complete, HDFC’s home loan rates will be linked to an external benchmark within six months.
“The shift from base rate (BPLR) to external benchmark rate (EBLR) represents a significant change in the lending structure of Indian banks. As you may know, BPLR is an internal benchmark rate set by individual banks based on various parameters, while EBLR is set by an external benchmark rate of Reserve Bank of India (RBI) clearer and more appropriate as per the market conditions. This is good for borrowers as it increases the transparency and accountability of the loan pricing system and ensures that the benefits of lower interest rates are passed on to them in a timely and efficient manner,” said Kaushal Agarwal, chairman of property advisory council The Guardians.
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“Most of the time, the lender is slow to communicate interest rates when the repo rate falls because interest rates are not directly linked to EBLR. According to the central bank, banks have to provide EBLR, which can be repo “If the RBI cuts the repo rate, all the benefits will go to the borrowers,” said Amar Ranu, head of equity and equity products and consulting services at Anand Rath..
Existing loan terms are unlikely to change and borrowers will continue to pay their EMIs as per existing repayment plans, explained Rana.
Banks, especially those with large CASA (current and savings accounts) deposits, enjoy a lower cost of funds. “HDFC Bank could lend more money at lower interest rates and thus pass on the benefit to customers. It would be a management decision to extend the discount to new customers only or even old customers,” said Kamal Agarwal, senior consultant at Singhania & Co. LLP.
Existing HDFC home loan borrowers can benefit from the HDFC twin merger if the bank reduces home loan rates or offers other incentives post-merger. “If the interest rate comes down as a result of moving to EBLR, the home loan tenure will come down. The amount will depend on how much the home loan rates come down,” said Agarwal.
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However, there is no guarantee that the bank will go this route. “(The rate reduction) is determined by each customer’s exact loan terms. Overall, bank mergers have led to increased product and service offerings for customers, which indirectly helps borrowers,” Agarwal said.
Ankit Jain, partner, Ved Jain & Associates: “It is not clear at this stage whether the bank needs a new mandate. I guess HDFC Bank wants to minimize inconvenience to its borrowers and find a way to continue lending on EMIs without the need for fresh orders.
Experts want more clarity on this. According to Jain, “Since the loan will be merged with HDFC Bank and not transferred from one borrower to another, HDFC Bank should be able to issue a certificate stating the amount which was paid as principal and interest during the financial year. The certificate would be sufficient to claim the principal and interest when filing the tax return. For.”
“This is only an interim situation and eventually the merged entity will submit a consolidated report, which will make it easier for borrowers to get tax benefits,” suggested Agarwal.
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Kamal Agarwal said, “How to merge two separate legal entities with separate PAN into one. So borrowers only need to show individual details.”
In addition, HDFC Bank may ask some HDFC customers to update their KIC details, while it may ask some customers, especially those who pay installment with post-dated cheques, permit NOT to submit new. “The process is likely to involve changes in the NACH mandate, at least for some customers, and post-dated checks may have to be issued in favor of HDFC Bank ,” said Vishal Dhavan, founder, CFP and Plan. Go to wealth advisors. This would also ensure that the borrowers’ home loan EMI auto-payment continues easily after the merger.
Currently, HDFC Ltd sells credit through HDFC Bank. “Currently, cross-selling commission is charged, which also includes GST. In the future, there may be no such requirements so GST charges may also be saved,” said Kamal Agarwal.
Finally, the HDFC Bank-HDFC Ltd merger means several changes for existing customers. “However, the changes are expected to be gradual,” said Adhil Shetty, CEO, BankBazaar.com.
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