Home Loan rates set to go up more
Buying a new home will become more expensive with banks set to hike lending rates by a quarter to half a percentage point after the Reserve Bank of India (RBI) raised key policy and savings rates. For existing home loan borrowers, too, rates will go up by the same extent. On a positive note, rates on short-term deposits could increase.
Among lenders, IDBI Bank has taken the lead in raising its base rate and prime lending rates by 50 basis points (1 bp is 0.1 percentage point) to 10% and 14.50%, respectively, and deposits rates by 25-50 bps in some brackets. “Although there is no asset bubble as such, asset price concerns remain as housing prices remain firm,” said RBI governor D Subbarao. Rising interest rates and property prices have impacted home buyers with many looking to delay purchases.
Chief executives of large commercial banks, including SBI, ICICI Bank and HDFC Bank , said they expect lending rates to increase before this month end. “Lending rates transmission has to happen with a lag. We expect a rise of around 25-50 bps. For deposits, it will happen in the short end, as the long end side yield curve is rather steep,” said SBI chairman Pratip Chaudhuri. SBI had raised its base rate by 25 bps a fortnight ago to 8.5% and PLR to 13.25%. HDFC will take a view on the lending rate next week.
“We will evaluate the cost of funds and see how interest rates move up across the board and take a call sometime next week. Overall, for the banking system, we expect interest rates to go up at least by 25 bps,” said HDFC’s CEO and MD Keki Mistry said. The housing finance company raised home loan rates by 25 bps in March 2011 to 9.75% up to. 30 lakh and 10% for loan up to. 75 lakh. For every 25 bps hike rates, EMI will go up. 17 per. 1 lakh on a 20 year-term loan.
ICICI Bank’s Chanda Kochhar and HDFC Bank’s Aditya Puri said the impact will be as high as 50-100 bps. Ms Kochhar indicated that since banks had not raised their lending rates when policy rates were raised in March, the latest rate hike by RBI will prompt banks to raise rates this time around.
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