HOME LOANS COSTLIER

ICICI Bank and HDFC on Thursday hiked home loan rates by a massive 0.75 percentage points, moving quickly to preserve margins in the wake of RBI raising key interest rates. The hike from the top two home loan providers is the second in the space of one month.

ICICI Bank hiked the floating reference rate (FRR) for consumer loans, which also includes home loans, to 14.25 from 13.5 per cent, with effect from July 31.
HDFC’s adjustable rate home loans will be priced at a minimum of 11.75 per cent with effect from August 1. Its fixed rate remains unchanged at 14 per cent per annum.
A 0.75 percentage point hike will mean customers on floating rate home loans will have to pay an additional EMI of Rs 51 per lakh on a 20-year term.
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Among other banks that increased their rates were IDBI Bank, which hiked its BPLR by 0.50 percentage points to 14.25 per cent, and Bank of Rajasthan, which increased it by 1 percentage point to 16 per cent On Wednesday, Punjab National Bank and Axis Bank had hiked lending rates. Other banks are also expected to follow suit after the RBI hiked key interest rates on Tuesday.

ICICI Bank had hiked its FRR by 0.75 percentage point, on June 30.
The hike in FRR will also lead to a hike in other consumer loans such as car loans and personal loans. Existing fixed rate customers will not be impacted by the increase and their rates will remain unchanged, the bank said in a press release.
For HDFC this is the second hike in a month. The earlier hike came on July 1 (by 0.5 percentage point to 14.25 per cent.)

Ms Renu Sud Karnad, Joint Managing Director, HDFC, said, “We have seen interest rates as high as 17 per cent falling to 8 per cent over a period of time. So, over a 15 year-term, borrowers may see rates coming down as well.”
“Genuine buyers will continue to purchase houses even if they postpone the decision for a short while,” she said.

Real estate impact

For consumers, the good news is that the increase in interest rates may be offset by a fall in real estate prices. “So far, real estate prices have not seen a fall because the rise in cement and steel prices have added to cost. But we expect to see a 10-15 per cent fall in real estate prices,” Ms Karnad said ICICI Bank also announced an increase of 0.75 percentage point in its Benchmark Advance Rate (I-BAR) to 17.25 per cent, from 16.5 per cent at present, which is the reference rate for wholesale loans. Earlier, Ms Chanda Kochhar, Joint Managing Director, ICICI Bank, had said that as the cost of lending for banks would go up, both deposit and lending rates could see an upwards revision.

Deposit rate hike

ICICI Bank also raised the interest rates on fixed deposits across various tenors by 0.75 to 1 per cent with effect from August 1.