Home and car loan rates to climb further
Interest rates on home and car loans could go up further following the increase in key policy rates by 25 basis points by RBI.
By ET Bureau | Updated:
MUMBAI: Interest rates on home and car loans could go up further following the increase in key policy rates by 25 basis points by RBI on Thursday.
However, the good news is that interest rates on short-term deposits could move up. In its mid-quarter monetary policy review, the central bank increased the short-term lending or repo rate to 7.5%, while the borrowing rate has been hiked to 6.5%.
One basis point is equal to one hundredth of a percentage. “The increase in interest rates would have to be passed on to customers. In July, banks will increase their base rate by 25 basis points,’’ said M Narendra, chairman and managing director of Indian Overseas Bank.
“Interest rates on short-term deposits could see an increase. Immediately, banks would hike interest rates on select loan categories, including infrastructure, loans given to NBFCs and home loans over Rs 25 lakh,” he added.
RBI has hiked policy rates for the tenth time since 2010 to contain the runaway rise in prices. Inflation stood at over 9% in May, much above the central bank’s comfort level of 5-6%.
ICICI Bank managing director and chief executive Chanda Kochhar said: ”Increase in the cost of funds would be passed on to customers. Policy rates could go up further by about 50 basis points in the rest of the financial year.”
Currently, the base rate of most banks around 9.25-10%. It has increased by over 1% from the beginning of the year. Despite the rising interest rates, year-on-year credit growth stood at 20.6% in early June 2011 but remained above the indicative projection of 19%.
“Credit offtake is getting adjusted in some segments like car loans and new house registration in select geographies while corporate investments are being held back. The credit growth has adjusted from a high of 25% to about 20%,” she added. “Credit growth for the industry would hover around 18-20%,’’ added Ms Kochhar.
At present, for a Rs 30-lakh home loan at 10.25% for 20 years, a customer pays an equated monthly installment, or EMI, of Rs 29,449 per month. A 25-basis point increase in home loan rates would increase the EMI amount by Rs 502 per month.
“Bankers have factored in a 25-bps increase in lending rate, there is no immediate need to hike rates,” said Punjab National Bank chairman and managing director KR Kamath.
“The increase in lending rates would depend on the credit growth and liquidity condition,” he added. As on June 15, banks have borrowed about Rs 60,000 crore from RBI on an overnight basis.
However, the good news is that interest rates on short-term deposits could move up. In its mid-quarter monetary policy review, the central bank increased the short-term lending or repo rate to 7.5%, while the borrowing rate has been hiked to 6.5%.
One basis point is equal to one hundredth of a percentage. “The increase in interest rates would have to be passed on to customers. In July, banks will increase their base rate by 25 basis points,’’ said M Narendra, chairman and managing director of Indian Overseas Bank.
“Interest rates on short-term deposits could see an increase. Immediately, banks would hike interest rates on select loan categories, including infrastructure, loans given to NBFCs and home loans over Rs 25 lakh,” he added.
RBI has hiked policy rates for the tenth time since 2010 to contain the runaway rise in prices. Inflation stood at over 9% in May, much above the central bank’s comfort level of 5-6%.
ICICI Bank managing director and chief executive Chanda Kochhar said: ”Increase in the cost of funds would be passed on to customers. Policy rates could go up further by about 50 basis points in the rest of the financial year.”
Currently, the base rate of most banks around 9.25-10%. It has increased by over 1% from the beginning of the year. Despite the rising interest rates, year-on-year credit growth stood at 20.6% in early June 2011 but remained above the indicative projection of 19%.
“Credit offtake is getting adjusted in some segments like car loans and new house registration in select geographies while corporate investments are being held back. The credit growth has adjusted from a high of 25% to about 20%,” she added. “Credit growth for the industry would hover around 18-20%,’’ added Ms Kochhar.
At present, for a Rs 30-lakh home loan at 10.25% for 20 years, a customer pays an equated monthly installment, or EMI, of Rs 29,449 per month. A 25-basis point increase in home loan rates would increase the EMI amount by Rs 502 per month.
“Bankers have factored in a 25-bps increase in lending rate, there is no immediate need to hike rates,” said Punjab National Bank chairman and managing director KR Kamath.
“The increase in lending rates would depend on the credit growth and liquidity condition,” he added. As on June 15, banks have borrowed about Rs 60,000 crore from RBI on an overnight basis.
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