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Home loans to cost more, FDs to yield more

india Updated: Sep 17, 2010 01:58 IST
HT Correspondent
HT Correspondent
Hindustan Times
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Home loan customers, get ready for another stretch.

With the Reserve Bank of India (RBI) raising policy rates on Thursday — the fifth time this year — commercial banks may also announce another increase in interest rates. The result: the tenure of your loan could rise.

The rise could add almost an extra year of payment liability to your tenure.

If you are a customer of a 15-year loan on which you’ve paid one year’s equated monthly instalments (EMI) and your bank raises its home loan rate by 0.5 percentage points, from 9.0 per cent to 9.5 per cent, you would have to pay 11 more EMIs.

All new loans for homes, cars or consumer durables may rise too.

On the other hand, deposit rates too will head north, which means some extra cash for senior citizens dependent on income from fixed deposits.

In its first mid-quarter review, RBI announced a 0.25 percent-age point hike in repo rate (rate at which it lends to commercial banks) and a 0.50 percentage point hike in reverse repo rate (at which it borrows from banks) to check runaway inflation.

“Inflation remains the dominant concern in macroeconomic management,” the RBI statement said. “There is need for continued policy response to contain inflation.”

Barely a month after banks raised their fixed deposit and lending rates after the RBI increased the repo and reverse repo rates by 25 basis points each, this increase in policy rates is expected to lead to another round of hikes.

“There will be greater pressure to hike deposit rates rather than lending rates,” said S.C. Kalia, executive director, Union Bank of India.