HDFC Home Loan - Prepayment Penalty increased from 2% to 3%

SBI and other Public Sector Banks has given a real blow to its competitors. HDFC which is market leader in Home Loan segment cannot be seen more frustrated and terrified than these days. HDFC has done everything to fool the investor and the last straw is giving them financial blow in form of increase in prepayment charges.

This NBFC is real laughing stock in its own offices too. The visible shattered Mr. Deepak Parekh could not hide his frustration and blasted against SBI low rates in national channels. The frustration is now in open and people can see it much clearly than ever. HDFC did almost everything to attack the move by SBI

1) To start with its agents started a campaign telling prospects that how SBI loan is mere an eye wash based on amortization schedule. It did not worked.
2) Secondly they played with rates which SBI would charge after 1 year, which did not worked either because SBI rates historically has been much low compared to most of the banks.
3) Finally you could see its agent really begging to customer with no argument left on their side.

HDFC frustration is evident in recent days because enquiries has increased in its offices related to shifting of home loan. You would be lucky if you get an answer from them because it seems that they have sent all their customer care officials on a paid leave. Well atleast 4 mails and lots of bad words has not given me an answer about my principal and documents available with them.

The last ditch effort is to increase the prepayment penalty from 2% to 3% in case you are shifting loan to another Bank. Yes this has happened and HDFC did not cared to inform anyone. This is solely done to show how shifting loan would bring the whole transaction to a loss rather than a profit. Such a monopolistic attitude will be tolerated in India because rules merely don’t work here or are non-existant.

HDFC is very prompt and almost the first bank to increase the rate everytime they see an opportunity. But reverse is not true as they are never as eager to reduce them. So the plot here is that they will tell you the rate is 10.75% above 30 lakh loan. If your paper looks good and branch head see that you are eligible then you will get a call or sms saying that they have reduced rate to 10.5%. You would be happy to hear that but after 3 or 6 months your rates would be increased to all time high. Poor India fellas have no option but to live with it (now with penalty of 3%).

I think this rate war has some serious connotations which if studied clearly can help the strategist a lot. Few of them are
1) With low rate people have stormed to SBI for transferring their loan. Definitely there must be many credible people who would want to get away from clutches of greedy banks like HDFC. This is a clear loss of banks like HDFC because if the person application gets approved (SBI have stringent measures) than they would lose a good customer. So a drain of good portfolio of loans
2) Real Estate market can go up only when people who have bought house is given a capability to buy more. Yes they are risk taking individuals and know how to rotate money. If we can bring down rate of existing customers than it will give a real estate market a real push. These are the people who have seen the world, have gone through processes and understand how to play it. You cannot expect new customers in market when the market in itself look scary. Only people who can perform here is the seasoned ones.
3) If banks like HDFC did not bring its rate low for existing/new customer than their portfolio would soon tilt towards the bad ones. One might think that its thing of distant future but the seed has been sown. Today only those customers are coming to such banks who have been refused loan from banks like SBI.

I believe HDFC and other banks owe to India much more than anyone. They have bigger role to play in bringing economy back rather than thinking about their fat paychecks. Time has come for such banks to get in line otherwise the situation has a potential to embark a severe impact to its market share.

In last two weeks 3 of my friends have initiated discussion with SBI and are in last stage. The other two known people could not get response from HDFC due to their poor customer service or frankly “Vicious Tactics”.