EMIs to hurt more as PNB, ICICI Bank and HDFC raise interest rates

Many lenders raised interest rates on loans on Wednesday, following the Reserve Bank of India’s (RBI) monetary policy committee (MPC) hike in the repo rate in early May.

The Housing Development Finance Corporation (HDFC) again raised interest rates on its home loans; this time by 5 basis points compared to June 1st. It had raised rates by 30 basis points last month, after the repo rate hike.

In a statement, the company said: “HDFC is increasing its Retail Prime Rate (RPLR) on home loans, on which its Adjustable Rate Home Loans (ARHL) are benchmarked, by 5 basis points. This takes effect from June 1, 2022,” HDFC said in a statement.

As a result, interest rates for new customers have increased by 35 basis points since May and for existing customers they have increased by 40 basis points. Indeed, the mortgage lender had raised interest rates by 5 basis points for existing borrowers before the rate hike.

With the current increase of 5 basis points, loans up to Rs 30 lakh will have an interest rate of 7.15%. Loans above Rs 30 lakh and up to Rs 75 lakh will have an interest rate of 7.4%. And, loans above Rs 75 lakh will carry an interest rate of 7.5%.

For female customers, prices will be 5 basis points lower on each segment.

In addition, customers with credit scores above 780 will be charged an interest rate of 7.05%.

Meanwhile, the country’s second-largest private sector bank, ICICI Bank, raised its marginal cost of funds-based lending rate (MCLR) by 30 basis points from June 1. Therefore, the bank’s overnight and one-month MCLR is 7.3 percent. ; the three-month MCLR is 7.35%; the six-month MCLR is 7.5%; and one-year MCLR at 7.55%. This comes after the MPC raised the benchmark repo rate to 4.4% in an off-cycle meeting.

This was due to upside risks to inflation, signaling that the rate cycle has reversed and the days of ultra-low interest rates are over. This is the first rate hike in 45 months since August 2018.

Immediately after the MPC raised the repo rate at its May 4 meeting, ICICI Bank raised its external benchmark lending rate by 40 basis points to 8.1%, effective May 4.

The Punjab National Bank also increased its MCLR by 15 basis points, effective June 1. With the revision, the one-year MCLR was increased to 7.40% from 7.25% earlier. The one-day, one-month, and three-month MCLR increased to 6.75%, 6.80%, and 6.90%, respectively, while the six-month MCLR increased to 7.10%. At the same time, the three-year MCLR increased by 0.15% to 7.70%.

Bank of India has also increased its MCLR on certain tenors, effective June 1.

In December 2021, just over 39% of banking system lending was linked to the external benchmark, according to data from the Reserve Bank of India (RBI). About 58.2 percent of home loans are linked to external referrals. And 53% of banking system loans are linked to the MCLR.

Interest rates are expected to rise further. Last week, the RBI governor pointed out that the MPC – at its meeting in early June – will again consider raising benchmark rates.

This is to bring down headline inflation, which has remained above the RBI tolerance limit for some time now.

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