TOUGH TALES Major retail lenders hiked MCLR by 5 to 20 basis points; Both HDFC and SBI have hiked it by 20bps
Mumbai: Rising interest rate is set to pinch retail borrowers harder as equated monthly installments (EMI) will remain elevated or rise further for the rest of the fiscal year till March 2019.
Earlier this month, large retail lenders such as State Bank of India (SBI), HDFC Bank, ICICI Bank, Bank of Baroda and Union Bank of India hiked their benchmark marginal cost based lending rate (MCLR) by 5 to 20 basis points each. One basis point is 0.01 percentage point. Private bank HDFC Bank and stateowned SBI both hiked their MCLR by a steep 20 bps across the board.
SBI’s one-year MCLR, which is linked to its home loan rate, is now quoting at 8.45% up from 8.25% before the latest increase. It has now increased by 50 bps since March this year from a low of 7.95%.
Higherratesmeanborrowerswillhaveto shell out more on their loans and mortgages every month.
For example, the SBI’s 50 bps increase since March means that home loan borrowersnowhavetoshelloutanextra ₹ 1,500 per month or ₹ 18,000 per year on a ₹ 50-lakh loan for a ten-year tenure.
“The rate cycle has turned without a doubtandthereisnownoquestionof rates doing down. Retail customers should expect their EMIs to remain elevated or go further up from here,” said Rajeev Anand, executive director, retail banking, Axis Bank. Strong economic growth indicating higher demand, and worries over inflation, main- ly due to higher crude oil prices are likely to keep interest rates elevated. Concerns about the depreciating currency have seen some analysts expecting a faster rate increase by the Reserve Bank of India (RBI). “We believe that the combination of a widening current account deficit (CAD) and external funding stress warrants poli- cy action... We expect a 50 bps hike in the repo rate in the fourth quarter 2018 (up from the earlier 25 bps), taking it to 7%,” said Pranjul Bhandari, chief India economist at HSBC.
The RBI governor has been steadfast in his single-minded focus to keep consumer price inflation around 4%.
Figures released earlier this month showed that consumer inflation had eased to 3.69% in August, below the RBI target.
However, worries over a widening current account deficit has kept money markets under pressure and led to the rupee falling to all-time lows.
Bankers say money availability has tightened as indicated by the rise in the benchmark 10-year bond yield which has risen 100bpsfrom7.12%inAprilto8.12%now.In other words, borrowing rates are unlikely to come down in a hurry.