Interest-rate spike may bypass home loans

MUMBAI: Prepare to pay more for that urgently needed personal loan, or the delayed payment for your credit card bill. Banks are likely to increase interest rates on these because the Reserve Bank of India, in an attempt to curtail excessive lending, has asked them to double provisions for potential losses.

The provisioning has been raised from 1 per cent to 2 per cent on loans made for real estate, and for personal loans, capital market loans, and credit cards.

But home-loan rates could escape revision. “Provisioning for real estate has been increased but not for housing. So I don’t expect any change in rates,” said Renu Sud Karnad, executive director, HDFC. Home-loan rates were raised in December after the RBI increased banks’ cash reserve ratio by 0.50 per cent.

Borrowing and lending rates in general are set to become more expensive after the RBI raised its overnight lending rate to banks from 7.25 per cent to 7.50 per cent. The move was a part of its quarterly monetary policy announced on Wednesday. This is the fifth time in a year that the RBI has raised the rate, mainly to curb inflation and runaway credit, which is growing at more than 30 per cent annually.

“The banking system as a whole will see an upward bias on interest rates,” said V Vaidyanathan, executive director, ICICI Bank. But, not all news is bad. Some banks may increase deposit rates as competition for funds intensifies.