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Home loans become expensive as banks hike lending rates

By Rishabh Chamoli | 2022-09-13

A number of banks including ICICI Bank, Punjab National Bank and Indian Bank have once again increased home loan interest rates. Since April this year, RBI has announced three consecutives hikes in repo rate and home loan providers have followed suit.

Punjab National Bank (PNB), a leading public sector bank, has once again raised its Marginal Cost of Funds Based Lending Rate (MCLR) by 0.05 percent across tenors, effective from September 1, 2022. ICICI Bank and Indian Bank have also increased the rate by 10 basis points, applicable from September 1, 2022 and September 3, 2022, respectively.
While Indian Banks MCLR will now be in the range of 6.95 to 7.75 percent, the MCLR for ICICI Bank is now between 7.75 percent and eight percent. Further, Canara Bank has increased its MCLR by up to 0.15 percent. Indian Overseas Bank and Bank of Baroda (BOB) have also increased their MCLR rates by up to 0.10 percent. While the new rates have been effective from September 10, 2022 for Indian Overseas Bank, BOB's rates will come into effect starting September 12, 2022.

The continuous upward revisions in the lending rates can be attributed to be the snowball effect of repo rate hikes by the Reserve Bank of India (RBI) since May 2022, starting with an increment of 40 basis points. The other two revisions by the RBI were announced in June and August 2022 at 50 basis points each, which makes the current repo rate 5.4 percent.

Hikes announced by banks in August 2022
The State Bank of India (SBI) hiked its MCLR for the third time by 20 basis points across all tenors, effective August 15, 2022. The bank had previously increased its lending rates in June 2022 in the wake of increased repo rate by 90 basis points (bps). Less than two months later, the Reserve Bank of India (RBI) increased the lending rate by 50 basis points again on August 5, 2022. This brought about updates in the lending rates of various banks.

Following the update, the ICICI Bank further increased its External Benchmark Lending Rate (EBLR) to 9.10 percent, effective from August 5, 2022. PNB raised the Repo Linked Lending Rate (RLLR) to 7.90 percent, starting August 8, 2022. Also, the Housing Development and Finance Corporation (HDFC) Bank hiked its Retail Prime Lending Rate (RPLR) by 25 basis points, effective from August 9, 2022. Further, the MCLR hike of up to 0.20 percent across tenors by BOB came into effect from August 12, 2022. SBI further effected a 50 basis point hike in its EBLR and RLLR, in addition to the MCLR increment. Bajaj Housing Finance and LIC Housing Finance also increased their lending rates by 0.50 percent. While the interest rates of Bajaj Housing Finance started from 7.70 percent, the LIC Housing Finance announced their loans eight percent onwards.

Will the increase in lending rates discourage homebuyers?
Realty experts believe that an upward revision in lending rates would upset the market, particularly the homebuyers. This combined with an increase in the rate of units in new housing societies by builders due to increasing raw material cost could hurt the buyer sentiment further. The home ownership appetite might decrease in the short term. But, it will largely depend on State governments decisions to extend or offer some subsidies on stamp duty and registration costs to counter balance the impact of the increase in home finance and new home costs.

Home values in the National Capital Region (NCR) have gone up by 10 percent lately amid the increase in raw material costs. According to Ankur Gupta, JMD, Ashiana Housing Ltd, The housing units that were earlier priced at Rs 3,400 per sq ft are now being sold at Rs 3,800 per sq ft. This upward price revision means that homebuyers have to shell out an additional amount to buy their dream home. Overall, there could be a cautious sentiment amongst homebuyers until prices settle or some booster policies are announced by the Government.