With at least 12 banks increasing their base rates and more expected to follow, get ready for a longer loan tenor or to pay out more as equated monthly instalments (EMIs). Those looking to buy a house on loan may need to re-adjust their budgets to pack in higher EMIs.
IndusInd Bank Ltd, Kotak Mahindra Bank Ltd, Development Credit Bank Ltd (DCB) and State Bank of Hyderabad have hiked their base rate by 25 basis points (bps) each in the last 10 days. Punjab National Bank (PNB), IDBI Bank Ltd, Dena Bank, Bank of Baroda, Oriental Bank of Commerce and Andhra Bank have nudged up rates by 50 bps.
What this means is that if the interest rate on your home loan of Rs50 lakh for 20 years was 10% with the base rate being 8% and a 2% mark-up, and the base rate hike is 25 bps, your new interest rate will be 10.25%. While the EMI on 10% interest was Rs48,251, it will go up to Rs49,082. If the base rate is hiked by 50 bps, the new interest rate would be 10.50% and the EMI rises to Rs49,919.
Graphic: Yogesh Kumar/Mint
Says Kamlesh Rao, executive vice-president (mortgages), Kotak Mahindra Bank, “The liquidity situation is tight as well as the short-term rate of borrowing is significantly high. Hence, we had to hike our base rate.”
Some banks have raised rates for the third time since July—one of them, thrice in the current quarter. A senior official of the Indian Banks’ Association, who is not permitted to speak to the media, says, “The regulator expects the banks to review base rate at least once a quarter and banks are permitted to revise their base rate when they think it’s needed.”
In fact, a few banks such as Allahabad Bank, IDBI Ltd, PNB and DCB have raised rates by as much as 100 bps over their launch base rate six months back.
The base rate system replaced the non-transparent benchmark prime lending rate system and was implemented on 1 July. The new base rates will be applicable to all loans linked to the base rate that have been sanctioned on or after 1 July.
Other banks are expected to hike their rates in the near future. Talking to the media recently, State Bank of India (SBI) chairman O.P. Bhatt said the bank will take a call on lending rates later since it increased rates this quarter itself. SBI had increased its base rate by 10 bps in October.