Home, auto loans to pinch

Come October, consumers will pay more on home and auto loans as bankers are expected to up lending by anywhere between 25 and 50 basis points. One basis point is equal to one hundredth of a percentage. This follows the Reserve Bank of India’s (RBI) move on Tuesday to hike its key policy rates — repo rate (the rate at which it lends to commercial banks) by 25 basis points (bps) to 6% and reverse repo rate (the rate at which banks park excess cash with RBI) by 50 bps to 5%. Banks are also expected to increase deposit rates since the growth rate of deposits has been rather sluggish at just about 14%.

“RBI move clearly signals an upward bias on interest rates. We will decide on a possible revision in rates in our asset and liability committee (ALCO) meeting,'' said SS Ranjan, chief financial officer, State Bank of India, adding, “The quantum of the rate hike will depend on how the cost of funds and demand for credit pans out.''

MV Nair, chairman and managing director, Union Bank of India, said, “We expect credit demand to pick up in October as the busy season kicks in and there will be pressure on liquidity which will lead to rise in interest rates. We will review our base rate and benchmark prime lending rate in October.''

Dipak Gupta, executive director, Kotak Mahindra Bank, added, “Interest rates will move up and we may increase our interest rates both deposits and lending to 25 basis points.''

Ashish Parthasarthy, head (treasury), HDFC Bank, said, “There is every possibility that base rate will be revised to the extent of 25-50 basis points.'' There would be another round of deposit rate hikes of 25 basis points across the board but not immediately.”

However, Keki Mistry, vice-chairman & CEO, HDFC, does not see any significant impact on long term rates following the 25 bps increase in rates. “Immediately there will be no increase in rates as the market had factored in a 25 basis point hike in repo rate. I expect RBI to now take a pause as inflation is easing,'' said Mistry.

The housing finance company — which has been facing stiff competition from public sector banks like State Bank of India —has introduced a dual rate home loan product. The scheme bears a fixed interest rate of 8.50% per annum up to March