The Housing Development Finance Corporation will bring down its retail deposit rates by 50 basis points in the coming week.

This is seen as a precursor to the housing finance major reducing its home loan rates in the near future by a corresponding 50 basis points.

With this fifth reduction in deposit rates, HDFC has reduced the rate of return on fixed retail deposits by 200 basis points within the first 10 months of fiscal 2003.

It last dropped its interest rates on December 9, 2002 by 50 basis points, after revising them by 25 basis points in November, on the heels of the bank rate dropping to 6.25 per cent.

With the fifth revision, the rate of return on HDFC's monthly income plan for deposits of one to less than two-year will be revised down to six per cent from the present 6.5 per cent.

For deposits of two years to less than three years, the interest rates stands revised to 6.25 per cent from 6.75 per cent, and 6.5 per cent (seven per cent) for deposits of three to seven years maturity.

The interest rate on annual income plans will be 25 basis points higher than the monthly income plans.

The rate cuts have been more aggressive on the funding side than on the lending side. The proposed revision in rates comes in the wake of HDFC being able to borrow funds from the market at around six per cent, which is close to the 10-year yield on government securities at 5.94 per cent.

The housing finance major raised 10-year debentures for a sum of Rs 100 crore (Rs 1 billion) at 6.29 per cent on Monday, 65 basis points more than what one pays for government paper of similar maturity. Just 10 days ago, HDFC raised five-year money at 6.1 per cent.

About 45 per cent of HDFC's fund requirement pegged at around Rs 11,500 crore (Rs 115 billion) for fiscal 2003 (in terms of expected approvals), will be funded by retail deposits.

When HDFC is able to raise funds at around six per cent directly from the market, it makes little sense for the finance company to pay more to retail investors.

Looking at HDFC's balance sheet, about 30 to 35 per cent of its annual fund requirement comes by way of repayment of earlier loans, and the balance is met through debentures, fixed deposits and international borrowings.

This year, HDFC also mopped up funds through mortgage-backed securities, targeting an amount of Rs 500 crore (Rs 5 billion). Approximately Rs 2,000 crore (Rs 20 billion) of fresh funds have also come through retail deposits during the year.