HDFC raises home loan interests by 30 bps after RBI's repo rate hike

Mortgage lender Housing Development Finance Corporation (HDFC) on Saturday raised interest rate on home loans by 30 basis points, effective May 9, following the monetary policy committee’s decision to hike benchmark repo rate by 40 basis points earlier this week. The new rates will start from 7 per cent as against 6.7 per cent earlier.

HDFC joins a list of lenders, including ICICI Bank, Bank of Baroda, RBL Bank, who have raised interest rates consequent to the rate hike by MPC in an off-cycle meeting.

“HDFC increases its Retail Prime Lending Rate (RPLR) on housing loans, on which its adjustable rate home loans (ARHL) are benchmarked by 30 basis points with effect from May 9, 2022”, the lender said in a statement. The mortgage lender had raised interest rates on home loans last week as well, but only for its existing borrowers, by 5 basis points. So, for existing customers, the interest rate on home loans will go up by 35 basis points.

“HDFC follows a 3-month cycle for reprising its loans to existing customers. So the loans will be reprised based on the date of the first disbursement of each customer”, the lender said.

For new customers, on loans upto Rs 30 lakh, interest rate charged will be 7.10 per cent. And, for loans ranging between Rs 30 – 75 lakhs, the interest rate charged will be 7.35 per cent, while for loans above Rs 75 lakh, interest rate will be 7.45 per cent.

Earlier this week, ICICI Bank raised its external benchmark lending rate by 40 basis points to 8.10 per cent while Bank of Baroda has raised its repo linked lending rate to 6.90 per cent. The public sector lender has also withdrawn the interest rebates available for home and car loans which were introduced to push retail credit. RBL Bank’s repo linked lending rate is now 9.50 per cent, effective May 4,2022.

A bunch of lenders, including Bandhan Bank, Kotak Mahindra Bank, Jana Small Finance Bank, Bank of Baroda, ICICI Bank, and Punjab National Bank also announced deposit rate hikes across multiple tenor baskets for retail customers.

The MPC raised the benchmark repo rate to 4.40 per cent in an off-cycle meeting, 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.

Analysts are of the opinion that the increase in benchmark repo rate will augur well for the banks as they will benefit from higher yields on the lending portfolio that are linked to external benchmarks but the CRR hike will have an adverse impact on the margins of lenders and may offset the benefit from the increase in repo rates.

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, with 58.2 per cent of the home loans linked to external benchmarks.

The share of MSMEs, personal loans, vehicle loans, and education loans linked to external benchmark are 69.2 per cent, 46.2 per cent, 31.1 per cent, and 23 per cent, respectively, RBI data showed.