Equivalent monthly installments (EMIs) and borrowing costs on loans to become more expensive
The assimilated monthly installments (EMIs) and borrowing costs on loans will become more expensive as the major Indian banks have increased or will increase their lending rates after the Reserve Bank of India raised its key repo rate by 50 basis points to combat rising inflation. a curse for the common man.
The repo rate is the rate at which banks borrow money from the RBI, and increasing it leads to an increase in borrowing costs for consumers.
Financial institutions are in the process of raising interest rates in line with the monetary tightening of the RBI since May.
This means that EMIs on loans will become more expensive, as will the interest on fixed deposits.
National Bank of India:
The country’s largest lender, the State Bank of India, had increased the marginal cost of lending rates (MCLR) on loans by 10 basis points, or 0.10 percent, effective July 15, 2022.
While the SBI is yet to pass on the August RBI increase to customers, see a table below explaining the change in EMI for a 20-year home loan based on the expected increase.
HDFC Bank:
Mortgage lender HDFC Ltd announced on Monday an increase in its benchmark interest rate by 25 basis points (bps), a move that will make loans more expensive for both existing and new borrowers.
That is the second increase this month, as a previous increase of 25 basis points was implemented from August 1, and the sixth increase by HDFC in three months.
Interest rates have risen 140 basis points since May this year.
Rates would increase by 25 basis points or (0.25 percent) for existing customers. HDFC is following a three-month cycle to re-price its loans to existing customers. Thus, the loans will be reviewed in accordance with an increased borrowing rate based on the date of each customer’s first disbursement.
ICICI Bank, Punjab National Bank Increase External Benchmark Based Lending Rates:
Two major banks – ICICI Bank and PNB – have increased their lending rates after the RBI raised the benchmark rate by 0.50 percent on Friday.
ICICI Bank External Benchmark Lending Rate (I-EBLR) refers to the RBI policy repo rate with a mark-up on the repo rate, ICICI Bank said in a notification.
Earlier this month, ICICI Bank revised the marginal cost of the fund-based lending rate (MCLR) by 0.15 percent across all maturities ahead of the announcement of the RBI key rate.
The state-owned Punjab National Bank (PNB) has also increased the repo of the external benchmark, pegging the borrowing rate at 7.90 percent.
A report from an internal study group of the RBI in 2017 said that benchmark internal rates, such as base rates or MCLRs, failed to provide effective transmission of the central bank’s repurchase decisions. It then recommended switching to an external benchmark.
Subsequently, from 1 October 2019, all new personal and retail floating-rate loans (housing, car) and floating-rate loans to micro and small enterprises were linked by banks to an external benchmark (repo).
Banks may take the external benchmark as the RBI’s repo rate, the government’s treasury-based yields published by the Financial Benchmarks India Private Ltd (FBIL), or any other market interest rate published by the FBIL.
The lenders are free to determine the spread over the external benchmark and to offer such external benchmark linked loans to other types of borrowers.
RBI guidelines require interest rates below the external benchmark to be reset at least once every three months.
