SBI hiked rates from around 9.5% to 10%. A floating rate loan with a principal outstanding of Rs15 lakh and a remaining tenure of 15 years will see EMIs going up by Rs456 per month.
The State Bank of India (SBI) and ICICI Bank on Monday raised lending rates by 0.5%, a move that will push up home loan EMIs apart from auto and consumer loans.
SBI hiked rates from around 9.5% to 10%. A floating rate loan with a principal outstanding of Rs15 lakh and a remaining tenure of 15 years will see EMIs going up by Rs456 per month. For a
Rs40-lakh principal outstanding of the same remaining tenure, the EMIs will go up by Rs1,215.
The hike in home loan rates will not impact fixed-cum-floating rate customers of the bank immediately. In these loans, the interest is supposed to be fixed for the first three years before it floats. Once customers complete three years, they will have to pay the higher rates.
SBI has also raised deposit rates by 0.25-0.75% for tenures up to five years. For tenures above five years, the rates are down by 0.25%. This suggests that the bank is keener on deposits up to five years and less sure of longer tenures.
Signalling a period of more jerky rate movement, SBI has also unveiled a variable rate deposit product linked to its base rate (currently 7.5%). The base rate is the interest rate below which a bank can’t lend money.
While the fixed deposit rate for five years is 7%, the variable rate for the same tenure is higher at 7.5%. For deposits of one and three years, the rates will be 0.5% and 0.25% below the base rate. But these are currently higher than fixed deposit rates by 0.25% and 0.5%, at 7% and 7.25%, suggesting that the bank would like to incentivise customers to shift to variable rate deposits.
While making a decision to invest in the variable rate deposits, individuals should keep in mind the risk of earning a lower interest when rates fall. The same risk is not there while investing in a fixed interest rate deposit, where the bank continues to pay the same rate of interest as it had done initially. Of course, if interest rates go up, those who invest in variable rate deposits will benefit.
While the changes in regular fixed deposit rates for SBI are effective from August 17, the variable rate deposits will come into force from September 6. Says SS Ranjan, deputy managing director and chief financial officer (CFO) at SBI: “Some people would like to have deposits at fixed rates and some at floating. We will give them both the options. Worldwide liabilities (deposits) have to be linked to a floating rate. We may not see it happening overnight, but this is the start of it.”
SBI is the second financier to offer a variable rate deposit product after Housing Development Finance Corporation (HDFC) which rolled out its variable rate recurring deposits in early February 2010.
SBI plans to review its variable rates at periodic intervals. “We will review the rate quarterly. The next one is due September-end. It may or may not change, but it will be reviewed,” says Ranjan.
Says Harsh Roongta, chief executive officer at apnapaisa.com: “From a consumer’s point of view, it is excellent news as variable rate deposits make the base rate more legitimate and transparent.” Banks have been raising interest rates on loans much faster than on deposits. With the base rate regime coming in, this problem will be ironed out, feels Roongta.
But what if interest rates start falling? “Borrowers have lived for ages with variable interest rates. Now it is time the depositors do it,” Roongta says.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}