Monday, April 15, 2024
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Can home buyers bear another rate hike from RBI? Home loan EMIs may get costlier ahead


When RBI hikes the repo rate, it becomes expensive for banks to borrow money from the central bank. Just like a borrower pays interest at a prescribed rate to a bank on their loans, banks also pay interest on their borrowings from RBI. However, it depends upon the bank’s balance sheet and requirement for funds. In any case, with a rate hike, the cost of funds is seen to move upward as well. To pass on the impact of a repo rate hike, banks increase interest rates on term loans such as home loans, personal loans, auto loans, and education loans among others.

In less than six months of FY23, RBI has hiked the repo rate by 140 basis points — taking the benchmark rate to 5.4% currently. This is done to tackle soaring inflation which is at a multi-year high at 7% and has stayed above RBI’s upper tolerance limit for the eighth consecutive month. Banks, NBFCs, and others have also hiked their benchmark lending rates following the RBI rate hikes trend. The majority of banks lending benchmarks are linked to the movement of RBI’s repo rate. Hence, if there is a repo rate cut, then loan EMIs get cheaper and vice versa.

What will happen to home buyers and home loans if RBI hikes the repo rate for the fourth time?

Aditya Damani, founder and CEO of Credit Fair, said, “RBI rate hike is widely expected and a hike up to 50bps shouldn’t affect the demand for consumer and personal loans since that is driven more by the economic environment.”

In Damani’s opinion, there could be a minor impact on the demand for long tenure loans like home loans and lease rental discounting. Non-food credit demand is growing quickly leading to falling excess liquidity in the banking system but bank deposit rates haven’t risen much yet. The cost of funds for NBFCs and fintechs might increase though due to the rising benchmark rates. Depositors might look at fixed income alternatives to protect their portfolios against rising inflation as deposit rates aren’t rising.

Meanwhile, Ramani Sastri – Chairman & MD, Sterling Developers believes it would be ideal if the central bank maintains ‘status quo’ as such would boost the demand.

As per Sastri, the economy as a whole is performing well and all indices of growth are positive. The revival in market sentiment against the backdrop of accelerating economic activities makes this festive season more attractive.

Sterling Developers MD added, “If another rate hike takes place, home loan interest rates may enter the red zone, leading to short-term turbulence on overall housing demand, especially when buyers are likely to invest in their dream homes during the ongoing festive season. The recent consecutive repo rate hikes have already added to buyers’ overall acquisition cost. The real estate sector has started seeing healthy recovery across key property markets, driven primarily by end-users and this needs to be fostered. Hence it would be ideal that the apex bank maintains status quo as this would boost demand in the overall economy.”

“We remain positive and hope that the government continues to provide the required support that the industry requires,” Sastri added.

However, Ravi Subramanian, MD & CEO, of Shriram Housing Finance said, “This August headline retail inflation has been higher than the Reserve Bank of India’s medium-term inflation target of 4%. The central bank is expected to continue maintaining the balancing act between growth and inflation. We expect the continuation of the RBI’s previous stance, resulting in 35 -50 basis point Repo hike in the current MPC meet. For the housing finance sector, the rate transmission to end borrowers may take place with a lag. The real estate sector is amidst a demand revival, and we hope that the rate changes are calibrated in such a way that it doesn’t end up affecting the positive market sentiment. Demand for affordable home loans in tier 2/3/4 cities and beyond is robust post the pandemic and we believe that the sector would be able to withstand this rate hike.”

Despite a 1.4% hike in repo rate during the past three policies, bank credit has witnessed healthy growth in their loans. Home loans demand too has stayed stable up till now.

In June 2022 quarter, scheduled commercial banks (SCBs) credit growth stood at 14% as compared to 10.7% growth in the previous quarter and merely 5.8% growth in Q1 of last year.

During the first quarter of FY23, the personal loans segment continued to lead the credit expansion and recorded 20.8% yoy, while bank credit to industry picked up momentum with a growth of 7.2%. Private sector banks continued to record higher credit growth than public sector banks. The share of private bankers in total credit increased to 38% in Q1FY23, while the share of PSBs stood at 47.8%.

RBI’s latest data revealed that after declining for ten successive quarters, the weighted average lending rate (WALR) on outstanding credit increased by 21 basis points (bps) during Q1:2022-23: the increase was significant for personal loans (31 bps) and finance (36 bps).

Here are some of the home loans offered by major banks like SBI, HDFC Bank, and ICICI Bank:

SBI’s home loan rates

The country’s largest lender offers home loan rates depending on the credit scores of the borrowers. The rates vary from 8.05% to 8.55%.

The lowest rate of 8.05% is levied on borrowers having a CIBIL score of more than or equal to 800, while the rate is 8.25% on credit scores between 700-749 and 100-200. The highest rate is 8.55% levied on 550-649 scores, while the rate is 8.15% and 8.35% on credit scores between 750-799 and 650-699 respectively.

These are rates on regular home loans.

SBI also offers a 0.05% concession to women borrowers subject to minimum ERR i.e. 8.05%.

ICICI Bank home loans

ICICI Bank has been among the first banks to revise their lending benchmark rates right after RBI has hiked its repo rate in the past three policies.

Currently, ICICI Bank offers 8.10% to 8.85% to salaried borrowers on home loans up to 35 lakh and above 30 lakh to 75 lakh. The rate is between 8.10% to 8.95% on home loans above 75 lakh.

For self-employed borrowers, the interest rate is 8.20% to 9% on home loans up to 35 lakh and above 35 lakh to 75 lakh. Meanwhile, home loans above 75 lakh has interest rates ranging from 8.20% to 9.10%.

HDFC Bank home loans

To salaried borrowers, the bank offers 8.10% to 8.50% interest rates on loans up to 30 lakh, while the rate is between 8.35% to 8.75% on home loans from 30.01 lakh to 75 lakh. The rate is 8.45% to 8.85% on home loans above 75 lakh. For self-employed women borrowers, the home loan rates range from 8.20% to 9%.

For salaried others category, HDFC Bank gives 8.15% to 8.55% on home loans up to 30 lakh, while the rates range from 8.40% to 8.80% on home loans from 30.01 lakh to 75 lakh, and the rates are from 8.50% to 8.90% on loans above 75 lakh. For self-employed in this category, the interest rates vary from 8.25% to 9.05%.

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