Mort­gagesSet­toPin­chasRatesRise

TOUGH TALES Ma­jor re­tail lenders hiked MCLR by 5 to 20 ba­sis points; Both HDFC and SBI have hiked it by 20bps

The Economic Times - - Finance & Commodities -

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.

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