Home loan borrowers are bracing for more increases in their monthly outgo on their mortgages as lenders follow the Reserve ‘s (RBI) cue and increase interest rates at the fastest pace in at least a decade.
On Saturday, Housing Development Finance Corp (
), India’s largest mortgage financier, hiked its benchmark retail prime lending rate (RPLR) for the fifth time this fiscal ahead of the RBI’s monetary policy meeting scheduled on August 5.
HDFC hiked its RPLR by 25 basis points, taking its minimum lending rate to 7.80% up from 7.55% before the hike. One basis point is 0.01 percentage point.
The hike means equated monthly instalments (EMI) on say a ₹50 lakh loan for a 20-year tenure, will now increase to ₹41,202 per month at 7.80% up from ₹40,433 per month at 7.55% before the hike.
In all, HDFC has increased its lending rate by 115 bps since May. India’s largest lender has increased rates twice in May and June before the latest hike.
Analysts said the latest hike by HDFC is pre-emptive as the central bank is expected to hike the benchmark repo rate, the rate at which banks borrow funds from it, by at least 25 basis points this week.
Raj Khosla, managing director of financial marketplace MyMoneyMantra, said the hike in rates has been the quickest in a decade and comes on the back of an extraordinarily easy liquidity situation which kept rates artificially low.
“In one sense it is some normalcy returning to rates but yes, the pace of increases is the quickest we have seen in recent memory. Rates are also increasing in an extraordinary situation with global macroeconomics playing a larger role in the backdrop of the conflict in Ukraine. It is fair to assume that rates could inch up a little from here,” Khosla said.
Borrowers have had to deal with rising EMIs every month for the last three months. For example, from a low of 6.40% in April, a top-rated HDFC borrower is now paying 7.80% with monthly EMI on a ₹50 lakh loan up from ₹36,985 to ₹41,202.
HDFC’s chief rival and the home loan market leader among banks
() has also increased its repo-linked benchmark rate by as much as 90 bps this fiscal.
Alok Choudhary, managing director-retail at SBI said the bank will take a call on rates based on its cost of funds after the RBI’s monetary policy decision on August 5. “We will examine the possibilities after the RBI policy. Our external benchmark lending rate is linked to repo rate and reflects the rate hike by RBI,” Choudhary.
An ICICI spokesperson, too, said the bank will take a call on rates after the RBI meeting.
The repo rate at 4.90% is coming off the lowest level in 15 years as the central bank aggressively cut rates to support the economy during the Covid-19 pandemic.
However, global volatilities like rising oil prices have led to higher inflation the world over. India’s inflation is stubbornly above 7% and higher than the 6% outer threshold of the RBI forcing the central bank to abandon its support for growth at any cost.
Adhil Shetty, CEO of BankBazaar, said expectations are that the repo will settle at 6% in the next 12 months from 4.90% currently and it is fair to assume that home loan borrowers will also see a similar quantum of rise in rates. “It is right that rates have gone up sharply and expectations are they will go up further. Rates are coming off record lows. The hikes have been pretty sharp in the last three months and borrowers whose rates are linked to the repo can expect an instant transmission. Those not linked to the benchmark could see a lagged impact but increase they will see,” Shetty said.