Banks likely to follow HDFC, increase rates

Mumbai: Most lenders are expected to follow HDFC’s lead in increasing home loan rates in August. Almost all banks that have announced their first quarter results so far have reported faster credit growth compared to deposits. Some have indicated that deposit rates will likely go up in coming weeks. This will trigger an increase in their cost of funds, thereby raising lending rates. For banks, the lending rates are directly linked to the RBI’s repo rate, which is expected to go up this week. The repo is the rate at which the RBI lends to banks. The country’s largest housing finance company HDFC increased on Saturday its retail prime lending rate on home loans by 25 basis points (100bps = 1 percentage point) from August 1. This is the fifth rate hike by the corporation in two months. This year, the lender has increased its benchmark rates by 115bps.
Following this increase, the best home loans from HDFC would be available at 7.8%, the highest in two years but still lower than the pre-pandemic level. Before the rate hike, the best rates were 7.55%. With this increase, the EMI on a Rs 1-crore home loan with a 20-year tenure will go up from Rs 80,865 to Rs 82,404.
The HDFC rate hike comes ahead of the RBI monetary policy committee (MPC) meeting on August 5. The central bank is widely expected to increase rates by 35-50bps to combat inflation. The move would also help keep up with the US Federal Reserve, which has been on a rate-hiking spree, putting pressure on the rupee.