PSU banks lending rates takes an upturn
In a move to stem the ailing rupee, the state-run banks have formally raised the lending rates with marquee customers and leading private sector lenders such as the Housing Development Finance Corporation (HDFC), triggering the cost of both the car and home loans.
According to bankers and market experts, the lending rates are expected to firm up as the recent tightening of rupee by the Reserve Bank of India begins to bite. This will likely discourage the consumer demand and will fail to give the sluggish economy a facelift, which has been in doldrums because of high interest and inflation rates.
Why has the lending rate increased?
As an attempt to perk up the falling rupee value, the RBI has come up with a stirring measure such as hiking the lending rates for banks and accumulating a sum of Rs 12000 crore in order to make the ailing currency stronger. Such a move on the part of the RBI was incumbent since the rupee lost 33 paise to reach 59.89 after touching over 61-levels recently.
Nevertheless, in the first quarter review of the monetary policy, the RBI has maintained the status quote and the tightening of the liquidity has put an impact on the short term rates. Within a fortnight, the rates crossed 10% following the footsteps of RBI that buttoned down the liquidity adjustment facility and raised the marginal standing facility rate by 200 bias points to 10.25%.
Such measures have increased the funds cost significantly. To add to it, if the trend continues, it will severely affect the margins of the bankers. The RBI has opted for a pro-growth stance since it has scaled down the repo rate by 25 bps three times in 2013, however, it came to a standstill when the value of rupee deteriorated sharply that put pressure on the price level.
Percentage of Increase
Under the new scheme, the lending rates to commercial banks have been raised by RBI by 2% to 10.25%, consequently making the home and car loans expensive. One of the largest mortgage lenders of India, HDFC that lent money at base rate, is maintaining lines of credit at 50-75 basis points more than the base rates. The borrowing percentage of HDFC now varies between 10.5%-11%.
HDFC offers home loans to its customers in the range 10.15%-10.40% and experts suggest that if liquidity continues to be tight, the borrowers may soon feel the heat of raised rates.
How it will impact real estate?
With the prolonged slowdown of the Indian economy combined with the depreciation of rupee to dollar, together with the hike in lending rates of PSU banks, will take a toll on the real estate market.
According to Property Consultants, higher lending rates will increase the cost of property to a significant degree and thus will act as a bane for the real estate market then as a boon. Moreover, the new lending rates will also aid the home buyers to purchase within their limits and will curb their buying behavior significantly.
