Home loans to be costlier

Delhi/NCR

Be ready to pay more in EMIs. Lending rates will go up in all segments, including home and car loan, after RBI hiked the key rates again on Tuesday. The central bank has increased the repo and reverse repo rates 50 basis point each.

“We are very disappointed with the RBI’s move. Every bank will be forced to increase the lending rates. Banks are still in the process to absorb the previous rate hikes by the RBI. With the latest round of increase in the benchmark rates, banks have no option but to pass it on to the customers,” HDFC chairman Deepak Parekh said.

Parekh also criticized RBI’s argument that the rate hike was necessary to contain the runaway inflation. He said present inflation was on account of higher food, fuel and commodity prices. Even if interest rates go up, people will not eat less. Besides, India has no control over the fuel and commodity prices, which are controlled by international market forces. Therefore, the rate hike will only affect growth without containing inflation.

The interest rate on home loan has already gone up to around 11.5% from 9.5% in the last one year. This has led to Rs 134 increase in EMI to Rs 1,066 for every Rs 1 lakh loan. So, in case of a Rs 50 lakh loan, the EMI will rise by around Rs 6,715 to Rs 53,300. So, on an average, EMIs have increased by 12.5%. And, bankers feel the rates will increase again. Along with higher inflation, you have to bear the burden of higher EMIs too.

Indicating that a hike in the interest rates in the present condition is imminent, Chanda Kochhar, MD and CEO of ICICI Bank, said: “Policy actions since last year and liquidity conditions have led to increases in deposit and lending rates. Going forward, banks would review the funding costs and go for further increases in lending rates accordingly.”

Margins of banks and institutions are already under pressure. “Any further tightening in interest rates will be passed on to the customers,” said Keki Mistry, MD and CEO of HDFC Ltd. He said HDFC will take a view on rate hike within a couple of days, considering the liquidity scenario in the system. Following the rate hike on Tuesday, interest rate in the money market firmed up by around 20 basis points.

“The policy rate change of 50 bps is much more than market expectation. Interest rates will definitely be north-bound. I see both deposit as well as lending rates going up soon,” said K V S Manian, group head, consumer banking, Kotak Mahindra Bank.

The impact of rate hike will also be felt immediately as lenders like State Bank of India and Punjab National Bank discontinued the teaser home loan plans following RBI’s direction. Under this scheme, the interest rates were fixed lower than the market rates for the first three years, which protected the borrowers from any increase in the market rate for some time.

Public sector banks like SBI, PNB, Bank of India, Central Bank and others also maintained that they will pass on any increase in the cost of funds to borrowers.

The rate hike will adversely affect the real estate sector, said Sanjay Dutt, CEO, business, Jones Lang La-Salle India. With stable-tofalling demand, higher rate of interest will further affect the sentiment.

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