RBI hikes rates, EMIs to pinch | india | Hindustan Times
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RBI hikes rates, EMIs to pinch

Get ready to pay more on your home loan as yet another interest rate hike of 0.25 percentage points — the 10th hike in 15 months by the Reserve Bank of India — from 7.25% to 7.50% will push commercial banks to pass on the burden to the consumer.

india Updated: Jun 17, 2011 02:25 IST
HT Correspondent

Get ready to pay more on your home loan as yet another interest rate hike of 0.25 percentage points — the 10th hike in 15 months by the Reserve Bank of India — from 7.25% to 7.50% will push commercial banks to pass on the burden to the consumer.

While the inflation rate continues to remain at a high 9.1%, the scope for old home-owners to increase the tenure of their home loans has ended. Their equated monthly installments (EMIs) will now start rising.

The tenure of a Rs 20-lakh loan of 20 years taken by a 30-year-old in March 2010 at 8.75%, for instance, would have risen by 16 years at the current interest rate of 10.5% and by 23 years if it rises to 10.75%.http://www.hindustantimes.com/Images/HTEditImages/Images/17_06_pg1e.jpg

This means his loan tenure crosses the generally-assumed working life of 60 years. Once the working life is crossed, banks cannot further increase the tenure and begin raising EMIs. To bring the tenure back to 20 years, the banks will have to increase the EMI to Rs 19,900 from Rs 17,674, a rise of 12.6%. Assuming banks increase their rates to 10.75%, the EMI will hit Rs 20,100, a rise of 13.7%.

The hike is around the corner. Following the RBI announcement, bankers said a fresh hike in rates may come soon.
"The rate hike is expected to be passed on to consumers,” said Chanda Kochhar, managing director of ICICI Bank, the country's third largest home loan provider.

“We will hike interest rates in the first week of July in order to pass on the increase in the cost of funds," said M Narendra, chairman and managing director, Indian Overseas Bank.

Worse, the apex bank will continue to increase policy rates.

“Based on the current and evolving growth and inflation scenario, the RBI will need to persist with its anti-inflationary stance of monetary policy,” it said in its policy statement.