Major lenders like ICICI Bank, SBI, and HDFC have raised home loan interest rates in line with the hike in RBI's repo rate to 5.9%. Other lenders are expected to follow suit in due course. Majority lenders have linked their lending benchmark rate with the policy repo rate. This means, any movement in policy repo rate either up or down will have an effect on term loan interest rates. In case of a rate hike, with banks increasing lending rates, EMIs most likely to get costlier ahead. With that, will demand for home loans take a blow in this festive season?
The festive season has kicked started with Navratri, while a long holiday awaits during the last two weeks of October due to Diwali celebrations.
Notably, a repo rate hike makes the cost of borrowing for lenders higher. Financial institutions too borrow money from RBI in times of shortage of liquidity, the repo rate is the interest rate they pay to the central bank on their borrowings. In turn, lenders pass on the impact of rate hikes to end consumers by raising their benchmark lending rates on home loans, personal loans, and car loans among others. However, the quantum of hike in lending rates depends from lender to lender and their requirement of funds.
RBI has hiked the repo rate by 190 basis points since May this year. The latest hike of 50 basis points was on expected lines to tame multi-year high inflation.
At present, the repo rate under the liquidity adjustment facility (LAF) stands at 5.90%. While the standing deposit facility (SDF) rate stands adjusted to 5.65% and the marginal standing facility (MSF) rate and the Bank Rate to 6.15%.
Although home loan rates have scaled further up in some banks and NBFCs, the overall impact of the latest repo rate hike is expected to be gradual in the housing sector. But if RBI continues to aggressively hike the key rate in the upcoming policies, chances are consumer sentiments may be dampened.
Ravi Subramanian, MD & CEO, of Shriram Housing Finance said, "The 50 bps rate hike reflects the RBI’s prudent approach to tackle the impact of geopolitical tensions and edgy global financial market sentiments. In the middle of rupee depreciation and inflationary pressure, the RBI has gone for further calibrated withdrawal of monetary accommodation so that regained momentum of the economic growth in the post-pandemic phase doesn’t witness a spill-over effect. Therefore, the rate hike is on expected lines."
In the housing finance sector, Shriram Housing Finance CEO said, "the rate transmission to the borrowers would be in a gradual phase. Given the positive market sentiments in the real estate sector, the robust demand is expected to outweigh the rate hike. Further aggressive rate hikes from hereon may however dent economic revival and dampen customer sentiment."
According to Atul Monga, Founder and Chief Executive, Basic Home Loan, while banks will ultimately have to pass on the increased costs to borrowers, the likelihood that this will happen during the current festive season is low. As many Indians make their purchase decisions during this time of year, financial institutions would not want to dampen the festive spirit by imposing a rate hike too soon. From a home buyer's perspective, they must take advantage of these opportunities and take advantage of seasonal discounts and offers in the market to make their purchases as interest rates remain below 9% per annum.
Gaurav Chopra, Founder & CEO, IndiaLends believes such measures will bring the focus back to consumers' credit profiles and the importance of maintaining healthy credit scores. It is all the more important that consumers continue to service their debt responsibly. If unable, they must speak with their respective lending institutions to identify measures to keep the EMIs affordable.
"We believe financially prudent individuals would leverage the opportunity to demonstrate good borrower behaviour and try to offset some of these increased costs by qualifying for lower interest credit through a strong credit profile," Chopra added.
Meanwhile, Atul Goyal, CFO, of Brigade Group expects to see only minimal impact on the real estate sector, and increase in interest rates for corporate loans will be marginal. Home loans are generally linked to floating interest rates with longer tenures.
Goyal added, "In most cases, EMI’s will remain the same with the duration of loan getting adjusted. The economy remains strong, and we expect buyer sentiment to be positive. We are currently witnessing a consistent demand for real estate, and we anticipate the current momentum to continue with increased hiring and salary hikes in the IT and ITE’s sectors. There is also the availability of surplus income with investment preference being real estate."
Further, Sachin Agrawal, Co-founder, and CEO, of Bizongo points out that RBI's priority is certainly to reign in record inflation, which puts a tremendous burden on the resources of any business.
While the increase in interest rates on loans and credit may cause a slight dip in aggregate demand, Aggarwal said, "we continue to remain optimistic about the future, for two reasons. First, despite macroeconomic headwinds and monetary tightening, India’s manufacturing activity is rapidly expanding. This indicates strong demand and sales of goods. Second, with global commodity prices steadily going down, the costs of inputs are also gradually decreasing."
SBI home loan rates
With effect from October 1, SBI offers an 8.55% rate on regular home loans to those borrowers who have a credit score above or equal to 800. The bank has imposed an 8.75% rate on borrowers with a CIBIL score of 700-749 and 151-200. The home loan rate is 8.65% on CIBIL scores of 750-799, 9.05% on 550-649 scores, and 9.55% on less than 500 credit scores. The bank has imposed an 8.85% rate each on CIBIL scores between 650-699 and 101-150.
The bank has a 0.05% concession for women borrowers subject to minimum EBR i.e. 8.55%.
Before RBI's policy, SBI home loan rates ranged from 8.05% to 8.55%.
ICICI Bank home loans
On its website, the bank said, "ICICI Bank External Benchmark Lending Rate" (I-EBLR) is referenced to RBI Policy Repo Rate with a mark-up over Repo Rate. I-EBLR is 9.25% p.a.p.m. effective September 30, 2022."
To salaried borrowers, ICICI Bank offers an 8.60-9.35% rate on home loans up to ₹35 lakh and from ₹35 lakh to ₹75 lakh. The rates are between 8.6% to 9.45% on home loans above ₹75 lakh.
To self-employed borrowers, the bank levies between 8.7% to 9.6%.
Earlier, the rates were between 8.10% to 9.10%.
HDFC home loans
HDFC increases its Retail Prime Lending Rate (RPLR) on Housing loans, on which its Adjustable Rate Home Loans (ARHL) are benchmarked, by 50 basis points, with effect
from October 1, 2022, as per the regulatory filing.
Now the NBFC offers interest rates between 8.60% to 9.45% to women borrowers, while the rates range from 8.65% to 9.50% to other categories.
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