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Got a Home Loan from HDFC? How Does the HDFC- HDFC Bank Merger Affect You?

Do you have a home loan from HDFC? In April 2022, it was blazoned that HDFC will combine into HDFC Bank. You may ask, aren’t these the same? No. HDFC and HDFC Bank are different realities. HDFC is a casing finance company( HFC) and is the protagonist of HDFC bank, bank. However, it’s because the lines are so blurred, If you’re still confused.

HDFC Bank doesn’t give out home loans. However, you’ll be vetted home loan from HDFC, If you enter an HDFC bank branch looking for a home loan. HDFC Bank earns a commission on the deal checks. And you make loan disbursements to HDFC latterly, maybe from your HDFC Bank savings regard.
What happens to your home loan with HDFC? Now, HDFC will combine into HDFC Bank and your home loan will get transferred from HDFC to HDFC Bank. How does that impact you? Let’s find out.

HDFC Has Greater Flexibility Than HDFC Bank in Pricing Home Loans

Your home loan interest rate = standard interest rate Credit spread. The credit spread is generally constant and depends on your credit profile( credit score, prepayment capability, etc.). A good credit profile implies a low credit spread. thus, as the standard interest rate changes, the loan interest rate also changes.
Now, the loan standard can be of 2 types.

  • Internal( The bank decides the value grounded on a formula. Linked to the bank’s cost of finances.)
  • External( The bank has no control)

For banks, the home loan interest must be linked to an external standard( Repo rate, 3- month or 6- month Treasury bill yields.). A standard over which the bank has no control.
By the way, this is evolution. However, we’ve moved from Base Prime Lending Rate( BPLR) → Base Rate → Borderline Cost of finances grounded advancing Rate( MCLR) → External standard, If you have followed this space. BPLR, Base Rate and MCLR were all internal marks. While each governance change was an enhancement over its precursor, nothing beats external benchmarking in terms of translucency.
thus, since the home loans by banks are linked to an external standard( say RBI repo rate), the home loan interest rate goes up and down with the change in repo rate. Quite transparent.
No similar coercion for HFCs NBFCs. For case, HDFC doesn’t need to link home loans to an external standard. It uses Retail Prime Lending Rate( RPLR), an internal standard. Indeed if the interest rates are going down in the frugality, it can keep the RPLR same and may not reduce RPLR proportionately. To shield off competitive pressures for new loans, HDFC can keep the RPLR constant but reduce the spread for new borrowers. therefore, the old borrowers continue to pay a advanced rate while new borrowers pay a lower rate. Well, that’s notfair.However, HDFC( casing finance company) continues to troll moolah at the cost of unknowing borrowers, If the old borrowers do n’tnotice.However, this is what you must do, If you notice and reach out to the lender. I reproduce an extract below.

So, you must pay HDFC a figure to change the spread. Had this home loan been with a bank, the interest rate will change for both old and new borrowers as soon as the external standard is changed( maximum reset period is 3 months).
All HDFC Loans Will Be Transferred to HDFC Bank
Since all the loans post the junction will be transferred to HDFC bank and the bank must use an external standard, your home loan will move to a more transparent governance. Positive news for HDFC home loan borrowers.
We don’t yet know what HDFC Bank will choose as the external standard. It’s possible that your loan interest rate will be kept constant. Basically, the bank will acclimate the loan spread to keep the final interest rate constant. You have no control over this except that you can refinance your loan with a different lender if you get a raw deal.
But yes, formerly your loan has migrated to HDFC bank, your loan interest rate will later come relatively transparent.
still, do n’t rejoice too soon. This junction requires numerous blessings( RBI, SEBI, IRDA, NCLTetc.) and can fluently take 12- 18 months.

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