With RBI hiking its repo rate by 25 basis points, home loans become all the more costly for borrowers.

Debtors expecting some relief from the unusually high interest rates been paid by them on home loans will have to bear the heat for some more time…as the Reserve Bank of India in its monetary policy meeting held on June 6, 2018…announced a hike in repo rate by 25 basis points, making home loans all the more costlier. With this latest announcement of the central bank, the new repo rate now stands at a staggering 6.25%, while the reserve repo rate has become equal to 6%. The decision to hike the repo rate was collectively taken by the Monetary Policy Committee (MPC).

Repo rate is defined as the lending rate at which the RBI provides money to the banks. Reserve repo rate is the lending rate of money by banks to RBI. The latest hike made by RBI will be felt directly by debtors with banks beginning to increase their loan interest rates.

Following the footsteps of RBI many banks can start increasing their MCLR or Marginal Cost-based Lending Rates, very soon. In fact, a number of banks have already hiked their rates in the recent past. These include: India’s largest lender State Bank of India (SBI), PNB or Punjab National Bank, Kotak Mahindra Bank, amongst a host of others. Some mortgage lenders like HDFC or Housing Development Finance Corporation have also hiked their rates.

Bankers note that the consolidation of interest rates will go on as credit growth is slowly but surely rising.

Shedding light on the latest development, Rajnish Kumar, Chairman of SBI, said, “The lending rates and deposit rates are likely to rise but we have just revised our rates last week (June 1, 2018) so until the asset liability committee (ALCO) meets at the end of this month (June 2018), there will be no change in our rates… If credit growth improves, certainly the rates will go up both for deposits and loans,” as per news published by DNAINDIA.com on June 7, 2018.

However, Kumar said that home loan borrowers have a one-year reset clause. “So if their rates get revised, then there is a status quo for a year and then, who knows what the rates are then. However, there will be a narrowing of interest rates between the short-term and long-term lending rates.”