RBI turns heat on home, car loans

Home, automobile and other retail loans are set to get costlier after the Reserve Bank of India made funds dearer for the banks on Thursday by raising key policy rates in its battle to squeeze away high inflation. HT reports. See graphics | Bumpy growth

Home, automobile and other retail loans are set to get costlier after the Reserve Bank of India made funds dearer for the banks on Thursday by raising key policy rates in its battle to squeeze away high inflation.

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However, the rise in interest rates will not be immediate. Customers are likely to face the heat of higher equated monthly installments (EMI) only in April as most of the banks hiked the rates last month.

RBI Governor D Subbarao announced an increase of 25 basis points (0.25 percentage points) each in the repo and reverse repo rates.

"There will not be a hike in lending rates by the banks immediately as they will take time to assess the situation. The hike will be visible next month," said M Narendra, chairman, Indian Overseas Bank.

Usually there is lag of around two weeks in banks raising loan rates after RBI’s signals.

State Bank of India had hiked its lending in mid-February while ICICI Bank hiked rates towards February-end after RBI raised rates on January 25.

"We will not raise home loan rates immediately. We will continue with the existing rates till March 31 but in April, our Asset-Liability Committee (ALCO) will meet and a decision on this would be taken," said T.M. Bhasin, chairman and managing director, Indian Bank.

Sanjay Gupta, managing director, PNB Housing Finance, said a lot will depend on borrowing costs.