Home loan EMIs set to soar, borrowers to suffer big money loss

Mumbai: A month after a wave of rate hikes hit home hunters in September, home loan rates are going up again. What is baffling home buyers is the fact that the fresh hikes, just announced effective October 1, on the eve of the Reserve Bank of India’s (RBI) bi-monthly monetary policy, are not the end of the rate hike cycle. It is just gaining momentum as RBI is attempting to shore up a falling rupee.

Analysts and bankers believe that RBI may be all set to hike the policy rate on Friday (October 5) for third time in a row, and it is bound to trigger another round of hikes soon. Your equated monthly installments (EMIs) will be at the receiving end.

The policy review closely follows two others in which the central bank hiked the repo rate (the rate at which RBI lends to banks) 25 basis points (bps) each.

Last week, State Bank of India (SBI) hiked the marginal cost of funds based lending rate (MCLR) by five bps across the board with effect from October 1.

Several others have followed suit over the last couple of days. ICICI Bank, Punjab National Bank and Housing Development Finance Company (HDFC) have all increased their MCLR and retail prime lending rate (RPLR) by 5-10 basis points.

MCLR is the benchmark lending rate used to lend by banks and RPLR is used by non-banking finance companies. One basis point is one-hundredth of a percentage point.

SBI hiked the rate after the bank’s asset liability committee met on the evening of September 27.

It said one-year MCLR, which is the benchmark rate to which most of the loans, including to the retail, SME and corporate segments, is 8.5% against 8.45% earlier.

Home loan rates of the lender now range from 8.70% to 8.95%, with women borrowers getting a relaxation of five bps. Loans up to Rs 30 lakh are available at 8.70%, bigger loans between Rs 30 lakh to Rs 75 lakh at 8.85% and all loans above Rs 75 lakh at 8.95%.

If there is a reset clause, then the rates on the home loans also get revised. A year ago, in November 2017, the one-year MCLR of India’s largest bank was 7.95%. In March 2018, this rate moved up to 8.15%. Recently, on September 1, rates were hiked by 0.20%.

For an amount of Rs 30 lakh, SBI will now provide home loan at 8.70-8.85%, up from 8.65%-8.80%.

ICICI Bank has increased its six-month MCLR from 8.50% to 8.60% and one-year MCLR to 8.65% from
8.55%.

The bank charges a ‘spread’ ranges between 30 bps and 90 bps, depending on the type of loan, type of borrower and the loan amount. Loans are available on both six-month and one-year MCLR. HDFC is providing home loans at 8.80-8.85% for a loan amount up to Rs 30 lakh, up from 8.70-8.75%.

Soumya Kanti Ghosh, group chief economic adviser of SBI, said in a note that he expected a 25 bps hike in repo rate in October policy.

“As the case is similar to the 2013 currency crisis, RBI should raise the policy repo rate at least 25 bps. We rule out a hike of 50 bps, as it may spook the market. However, there is an outside probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message,” he said in the note.

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Some analysts believe that RBI may be forced to go for two more rounds of rate hikes in this financial year to shore up rupee.

Source: DNA Money