Mumbai, March 24: HDFC — the country’s largest housing finance company — has cut its retail prime lending rate (RPLR) by 50 basis points. The rate cut will benefit its nine lakh home loan borrowers across the country.

The existing borrowers can now look forward to paying lower equated monthly instalments (EMIs) from their respective reset dates.

HDFC follows a three-month reset cycle for its floating-rate loan customers.

The cut in the RPLR means that EMI will come down by Rs 34 per month per lakh for a home loan with a 20-year tenure.

Observers say the lower cost of funds can be a key factor behind the rate cut. However, tough competition from banks may have also played a role. Nationalised banks such as the State Bank of India have turned aggressive in housing finance.

In February, the SBI announced that it would provide home loans at an interest rate of 8 per cent for one year and that the originally contracted rate would be applicable after the one-year period. SBI’s scheme has been successful and it has sanctioned Rs 1,300 crore in the first month of the offer.

Other public sector banks such as Canara Bank followed the SBI in offering such attractive packages. Canara will provide home loans at a fixed rate for the first five years and, thereafter, charge a floating rate that will be 200 basis points below the benchmark prime lending rate prevailing at that time.

According to HDFC, the revised RPLR at 14 per cent will be effective from March 25. This is the second time in three months that the corporation is bringing down its RPLR. The rate has been brought down by 100 basis points since December 2008.

Renu Sud Karnad, joint managing director of HDFC Ltd, indicated that the revision was a result of lower costs. “We have been able to bring down our costs due to improved operational efficiency and good quality portfolio. HDFC continues to efficiently manage its liabilities and reprice its debts,” she said.

Karnad added that the marginal cost of borrowing (fresh borrowing) had come down earlier this year and this was passed on to its new customers through a special limited period offer at a rate beginning at 9.5 per cent.

“We are now seeing a reduction in the costs on a portfolio level and, as in the past, HDFC has ensured that the reduction in cost is passed on to existing customers by way of a reduction in RPLR,” she said.

According to Karnad, there has been an increased interest from first-time home buyers over the past few months.

HDFC said the RBI’s recent cuts in policy rates had created adequate liquidity in the banking system, which had a positive impact on the cost of funds.

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