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RBI hikes repo rate again, home loans get costlier

By Rishabh Chamoli | 2022-11-08

The Reserve Bank of India (RBI) increased the repo rate by 50 basis points in its review meeting on September 30, 2022. Since May 2022, it is the fourth consecutive hike amid the inflation rate soaring high. The RBI has increased the repo rate by 190 basis points so far.

The year 2022 has witnessed the Reserve Bank of India (RBI) announcing multiple upward revisions in repo rate the rate at which it lends money to banks. Not surprisingly, after four corrections this year since May 2022, the current repo rate stands at 5.90 percent. The recent increment of 50 basis points is another step by the apex bank to counterbalance the rising inflation. However, the move is also expected to bring hikes in home loan interest rates charged by banks to, thus, impacting the home purchasing power of the masses.

Starting November 1, 2022, the Punjab National Bank (PNB), Bank of India and ICICI Bank have revised their Marginal Cost of Funds Based Lending Rate (MCLR) by up to 30 basis points,15 basis points, and 20 basis points, respectively. The MCLR across tenors is in the range of 7.40 to 8.35 percent for PNB. In the case of Bank of India, the one year MCLR has been raised from 7.80 percent to 7.95 percent, while the remaining tenors have witnessed a hike of 10 basis points. ICICI Banks updated MCLR is in the range of 8.05 to 8.30 percent. Indian Bank will also hike its lending rates by 15 to 35 basis points, effective from November 3, 2022. The DCB Bank has also raised its MCLR by 27 basis points across tenors from November 5, 2022. The revised lending rates are now in the range of 9.58 to 10.23 percent.

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.