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RBI hikes repo rate again, home loans to get costlier

By Rishabh Chamoli | 2022-12-30

The Reserve Bank of India (RBI) has increased the repo rate by 35 basis points in its review meeting on December 7, 2022. Since May 2022, it is the fifth consecutive hike amid rising inflation. The RBI has increased the repo rate by a total of 225 basis points in 2022.

The year 2022 has witnessed the Reserve Bank of India (RBI) announcing multiple upward revisions in the repo rate the rate at which it lends money to banks. Not surprisingly, after five corrections this year since May 2022, the current repo rate stands at 6.25 percent. The recent increment of 35 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, thus, impacting the home purchasing power of the masses.

Anticipating the announcement, Punjab National Bank (PNB), Bank of India, and ICICI Bank increased their Marginal Cost of Funds Based Lending Rate (MCLR) by five basis points, 25 basis points, and 10 basis points, across all tenors from December 1, 2022. Bank of India hiked the one year tenor by 20 basis points from 7.95 percent to 8.15 percent. It has also surged the Repo Based Lending Rate (RBLR) to 9.10 percent, effective from December 7, 2022. HDFC Bank has also implemented MCLR revisions across the tenors from December 7, 2022. Starting December 20, 2022, HDFC Bank has increased its Retail Prime Lending Rate (RPLR) by 35 basis points to 8.65 percent. The bank will provide home loans at this rate to borrowers with a credit score of 800 and above. LIC Housing Finance has increased its Prime Lending Rate (PLR) by 0.35 percent, which has revised the minimum home loan interest rate offered by the institution to 8.65 percent.

What is External Benchmark Lending Rate (EBLR)?
External Benchmark Lending Rate (EBLR) is the minimum interest rate set by the banks at which they lend loans. It is based on external benchmarks such as repo rate. The benchmark is set for floating interest rate loans.

What is Repo Linked Lending Rate (RLLR)?
Repo Linked Lending Rate (RLLR) is the lending rate which is based on the repo rate set by the RBI. The revision in repo rate has a direct impact on the RLLR. In case of a loan based on RLLR, the floating interest rate will fluctuate up and down as per the revisions in repo rate.

What is MCLR and its impact on your home loan EMI?
Since its inception in 2016, MCLR has been in the news with reference to interest rate cut by the RBI. Here is a lowdown on MCLR and its effects on EMI.
The move will make the Equated Monthly Instalments (EMI) on the various loans like home, auto and personal more expensive. Other banks are also expected to follow suit.

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.