Loans becoming dearer as banks up lending rates

Mumbai: Housing and various other loans have become costlier as premier lenders like ICICI Bank and HDFC Ltd on Thursday decided to up their lending rates - a move that is estimated to add 12-20 per cent of the loan size to the repayment amount.

Besides ICICI Bank and HDFC Ltd, both of which have raised their lending rates by 0.75 per cent, others such as IDBI Bank, Yes Bank and Bank of Rajasthan also announced on Thursday a hike in their lending rates. Public sector lender PNB, Axis Bank and J&K Bank hiked their rates on Wednesday itself.

The hike in lending rates by 0.5 per cent to 1.0 per cent comes after RBI hiked key rates to tame rising inflation, which is rising towards 12 per cent mark.

According to industry sources, more banks are now expected to increase their lending rates in the coming days to protect their margins.

India's largest private sector lender ICICI Bank increased its floating reference rate (FRR) for consumer loans, including home loans, by 0.75 per cent to 14.25 per cent, effective Thursday.

It also announced a 0.75 per cent hike in benchmark advance rate to 17.25 per cent.

The bank also increased interest rates for various tenors of retail fixed deposits by 0.75 per cent to 1 per cent with effect from August 1.

Leading housing finance company HDFC also revised its retail prime lending rate on which floating home loan rartes are benchmarked by 0.75 per cent, effective from Friday.

Following these hikes in lending rates, the floating rate home loans would be priced at a minimum of 11.75 per cent for new HDFC customers, while fixed rate would remain unchanged at 14 per cent.

The hike entails that home loan consumers would have to now fork out over Rs 1,000 more every month as EMI for a loan of Rs 20 lakh, whose repayment is spread over 20 years.

ICICI Bank also announced a hike of 0.75 per cent in its benchmark advance rate, which would now increase to 17.25 per cent from 16.5 per cent currently.

The hike entails that consumers would have to now fork out over Rs 1,000 more every month as EMI for a loan of Rs 20 lakh, whose repayment is spread over 20 years.

A few banks already announced rate hikes yesterday and others are expected to soon follow suit.

On a 11.75 per cent floating rate, the EMI is estimated to work out to around Rs 21,675 per month, up Rs 1,031 from Rs 20,644 at a rate of 11 per cent.

This would result in an overall additional burden of close to Rs 2,50,000 over the 20-year period.

The rates are being revised in the wake of tight monetary measures announced by RBI on Tuesday, when it asked the banks to maintain higher mandatory cash reserves with it and also increased its short-term key lending rates for them.

Public sector lender Punjab National Bank on Wednesday announced an increase of up to one per cent in the Prime Lending rate to 14 per cent.

Private sector Axis Bank also hiked its PLR by 0.5 per cent to 15.75 per cent, which would came into effect on Wednesday, while Jammu & Kashmir Bank hiked its PLR by up to 1 per cent.

As a part of its measures to tighten liquidity in the banking system to counter inflation, the apex bank has hiked the short-term inter-bank lending rates (repo rate) and mandatory cash reserve (CRR) by 0.50 per cent and 0.25 per cent, respectively.

Experts believe that home loans could get costlier again in coming months as RBI is expected to further tighten its monetary policy with additional CRR and repo rate hikes.