EMIs to hurt more as PNB, ICICI Bank, HDFC hike interest rates

Third hike by HDFC in a month, ICICI increase steepest at 30 basis points

Many lenders on Wednesday raised interest rates on loans, consequent to the repo rate hike by the Reserve Bank of India’s (RBI’s) monetary policy committee (MPC) in early May.

Housing Development Finance Corporation (HDFC) raised interest rates on its home loans again; this time by 5 basis points from June 1. It had raised rates by 30 basis points last month, post the hike in repo rate.

In a statement, the company said, “HDFC increases its retail prime lending rate (RPLR) on housing loans, on which its adjustable rate home loans (ARHL) are benchmarked, by 5 basis points. This is with effect from June 1, 2022,” HDFC said in a statement.

Consequently, interest rates for new customers have gone up by 35 basis points since May and for existing customers, it is up by 40 basis points. This is because the mortgage lender had raised its interest rates by 5 basis points for existing borrowers before the rate hike happened. 

With the current 5 basis points increase, loans up to Rs 30 lakh will have an interest rate of 7.15 per cent. Loans above Rs 30 lakh and up to Rs 75 lakh will have an interest rate of 7.4 per cent. And, loans above Rs 75 lakh will carry an interest rate of 7.5 per cent.

For women customers, rates will be 5 basis points lower in every segment.

Also, customers with credit scores above 780 will be charged an interest rate of 7.05 per cent.

Meanwhile, the country’s second largest private sector bank, ICICI Bank, has increased its marginal cost of funds-based lending rate (MCLR) by 30 basis points from June 1. Consequently, the overnight and one month MCLR of the bank is 7.3 per cent; three month MCLR is at 7.35 per cent; six months MCLR is at 7.5 per cent; and one-year MCLR at 7.55 per cent. This comes after the MPC raised the benchmark repo rate to 4.4 per cent in an off-cycle meeting.

This was due to upside risks to inflation, signaling the rate cycle has turned and days of ultra-low interest rates are over. This was the first rate hike in 45 months, since August 2018.

Immediately after the repo rate hike by the MPC in its May 4 meeting, ICICI Bank had raised its external benchmark lending rate by 40 basis points to 8.1 per cent, effective May 4.

Punjab National Bank also increased its MCLR by 15 basis points, effective June 1. With the revision, one-year MCLR has been increased to 7.40 per cent from 7.25 per cent earlier. The overnight, one-month and three-month MCLR has been increased to 6.75 per cent, 6.80 per cent and 6.90 per cent, respectively, whereas the six-month MCLR increased to 7.10 per cent. At the same time, three-year MCLR increased by 0.15 per cent to 7.70 per cent.

Bank of India also increased its MCLR on some tenors, effective June 1.

As of December 2021, a little over 39 per cent of banking system loans are linked to the external benchmark, shows Reserve Bank of India (RBI) data. Around 58.2 per cent of the home loans are linked to external benchmarks. And, 53 per cent of loans of the banking system are linked to the MCLR.

Interest rates are expected to move up further. Last week, the RBI governor pointed out that the MPC — when it meets in early June — will again look at increasing the benchmark rates.

This is to bring down headline inflation, which has remained above RBI’s tolerance limit for some time now.