End is near for easy money as banks hike lending rates
06 Oct 2010
Equated monthly installments (EMIs) on loans taken from banks are expercted to rise, adding to borrowers' cost, as banks begin to revise their base rates and prime lending rates upwards. The base rate is the minimum rate of interest that a bank charges on its customers, and the prime rate, or the best rate a bank can offer, is closely linked to this.
The country's largest private lender, ICICI Bank, today increased its home loan interest rate to 8.5 per cent. The bank on Tuesday made a 25 basis points increase in its base rate to 7.75 per cent. HDFC Bank, another leading private sector lender, on Tuesday raised its base rate by a similar 0.25 percentage points, from 7.25 per cent to 7.50 per cent. The increase came into effect from Tuesday itself.
On 30 September, a number of lenders raised their base rates. Punjab National Bank hiked the minimum rate of interest on loans to 8.5 per cent from 8 per cent, while Axis Bank, Kotak Mahindra Bank and foreign lender Standard Chartered Bank raised their base rates by up to 25 basis points.
The only respite for consumers is that the country's largest bank, State Bank of India, has kept its base rate unchanged at 7.5 per cent. On 1 October, SBI had raised deposit rates but held on to its base rates "for the time being" , indicating it could also raise its base rate soon.
Home finance major Housing Development Finance Corp (HDFC) too has not raised rates yet. This means that those taking home loans from HDFC Bank too are so far safe from the hike, as HDFC Bank's home loan rate is linked to its base rate, which remains unchanged.
The increase in the base rate is primarily because of the tight money regime that the Reserve Bank of India is currently pursuing to combat inflation. The RBI had raised the short-term lending (repo) and borrowing (reverse repo) rates in its September monetary policy review.
Base rate was introduced as replacement for the Benchmark Prime Lending Rate (BPLR) from 1 July this year, in order to bring about more transparency.
