Home loan rates hiked to curb Indian inflation

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NEW DELHI, (Internet): With the recent credit policy, the Reserve Bank of India (RBI) has pushed up interest rates on loans, including home loans. Many banks announced a hike in their interest rates by an average 0.75 per cent. The move would increase repayment by a minimum of about Rs 1.25 lakhs on a Rs 10-lakh loan. On a 20-year loan, borrowers have to pay over Rs 500 more every month in EMI on a loan of Rs 10 lakhs.

The rates have been revised as a result of the tight monetary measures announced by the RBI recently. It has asked banks to maintain higher mandatory cash reserves with it and also increased its short-term key lending rates for them.

It raised the repo rate by 50 basis points to nine per cent from the existing 8.5 per cent. This short-term rate at which the RBI lends cash to banks was last raised on June 24 by 50 basis points to 8.5 per cent. The move is directed at cooling inflation that is running at around 13 per cent by containing demand.

The central bank has also raised the cash reserve ratio (CRR) - the percentage of a bank's deposits which it must keep with the central bank - by 25 basis points from the existing 8.75 per cent. This will come into effect from August 30.

The reverse repo rate - the short-term rate at which the central bank absorbs cash from the market - remains unchanged at six per cent. It has also held the bank rate - rate used to price long-term loans to firms and individuals - steady at six per cent.

Many banks have already announced rate hikes during the last fortnight. Some others are expected to follow suit. Banks are hiking their retail prime lending rates on which the adjustable home loans are benchmarked. As the cost of lending for banks goes up, both deposit and lending rates will be hiked.

For example, 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 lakhs over a 20-year period. A 0.75 percentage point hike will mean - on a floating rate home loan - an additional EMI of Rs 51 per lakh, on a 20-year term.