Banks are already offering rates of 9.5-10% on deposits above one year. Rates will soon touch 10-10.5% for deposits up to three years.
MUMBAI: It’s belt-tightening time for home loan borrowers. Auto and consumer loans could also get costlier as the Reserve Bank of India, in an all-out attack on inflation, is tightening the noose around banks. Unlike in the past, when bankers extended the tenures of home loans instead of raising the quantum of monthly payments, this time your equated monthly instalments (EMI) are bound to rise.
But people with money in the bank, especially senior citizens, can rejoice. When money is tight, deposit rates go up. Banks are already offering rates of 9.5-10% on deposits above one year. Rates will soon touch 10-10.5% for deposits up to three years.
RBI has impounded bank funds to the tune of Rs15,500 crore by raising the cash reserve ratio (CRR), forcing banks to slow down credit and raise interest rates. While the CRR is going up by 0.5% in two stages to 6.5%, banks that are short of money will also have to pay more for short-term borrowings from the RBI.
The repo rate – the rate at which banks borrow from the central bank – was raised by 0.25% to 7.75% on Friday. There is no way banks can now offer cheap loans to anybody.
“This is an extreme step taken by the central bank,” said Aseem Dhru, executive vice-president and head of business banking, HDFC Bank. “It was least expected. The cost of funds will move up and we’ll see a hike in lending rates.” Dhru expects personal and auto loan rates to rise by 75-100 basis points (100 basis points make 1%).
Home loan rates are expected to shoot up by around 0.5%. The largest player in home loans, ICICI Bank, plans to meet on Monday to decide on revising the home loan rates. HDFC, the other big lender, is likely to follow suit in due course.
The bad news is that the worst may not be over. “The RBI measure aims to curtail the credit flowing to overheating sectors like real estate. We can expect further home loan hikes during the year,” said an official at the State Bank of India. The country’s largest public-sector bank feels that home loan rates will shoot up by 50 basis points (0.5%), which means borrowers’ equated monthly instalments will rise by Rs32-33 per lakh for a 20-year loan.
Harpreet Singh, business director for wealth management and distribution of loans with Centurion Bank of Punjab, concurred. “Home loan rates are nearing the peak,” he said. “We do not expect a slide in interest rates now. Inflation is on the rise and the regulator wants to curb credit growth in the economy.”
It’s going to hurt. Since last year, home loan rates have grown by 2.5-3%. To shield borrowers, many banks have already extended the tenures, while others raised both tenures and EMIs. This time, though, there is no alternative to EMI increases. “We plan to reschedule the system of monthly instalments and the tenures,” Singh said. “As we have increased tenures many times in the past, we will have to increase the instalments this time and keep tenures stable.”
The advice most personal finance advisers are giving home loan borrowers is simple: if you have the cash, prepay a part of your loan to bring down the EMI.
){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}