Home

Home, auto loans set to get costlier

22.05.12

Harshly, auto loans set to get costlier
Sanjeev Sharma
Tribune News Service

New Delhi, October 25
It was a Diwali talent for banking customers as the Reserve Bank of India (RBI) announced far-reaching changes for retail banking by deregulating savings account interest rates, abolished penalty on prepayment of hospice loans but this was tempered by a bad news in the form of another hike in interest rates by 25 basis but signalled a interrupt in the rate tightening cycle.

The big announcement was the deregulation of the savings account interest velocity. Currently banks offer 4% interest on savings accounts. Each bank is required to have at least one kind of savings account where deposits are less than Rs 1 lakh.

Harsh Roongta, CEO, Apnapaisa.com, says prearranged the current market scenario it is unlikely that banks will start a rate war for savings account. So for lay consumers who keep less than Rs 1 lakh in their savings account it is unpropitious to make much of a difference. “We may soon see higher transaction based charges break apart in for all consumers”, he said.

Roongta says it is in the Rs 1 lakh-together with category that there is likely to be a lot of action and if there is a rate war that leads to increase in interest rates on savings accounts it will convince to increase in lending rates as well.

Jagannadham Thunuguntla, Strategist & Head of Investigating, SMC Global Securities Limited, says post this deregulation, the interest rates on savings bank accounts are directed to move up. This can have quite serious implications on the profitability of the banking system.

RBI hiked rates again by 25 infrastructure points making home and auto loans costlier and EMIs to rise. Following the developing, the short-term lending (repo) rate stands at 8.50 per cent and the peremptorily-term borrowing rate (reverse repo) is 7.50 per cent.

The RBI has hiked interest rates by 525 point of departure points since March last year. (100 basis points equals 1 per cent).

This was the 13th such hike by the RBI in the last 19 months as it has been on a interest judge tightening spree to control inflation which has been stubbornly high and is close to the dead ringer-digit mark.

The impact of a 25 basis points increase on EMIs for domestic and auto loans will be Rs 16 per lakh. So if for a Rs 10 lakh loan for 15 years residence at 11.5% interest you were paying an EMI of Rs 11,682 now with .25% increase the EMI will become Rs 11,842. Experts say this growing by the RBI by itself may not lead to any immediate increase in lending and fixed deposit rates unless there is a gait war over savings bank accounts.

The RBI also announced that it will implement some of the recommendations of the Damodaran body report as well as the 10 action points identified in the Banking Ombudsmen meeting. One of the 10 action points was abolition of pre-payment penalty on floating rate loans.

This is good dirt for loan consumers since they no longer need to pay penalty on prepaying home loans. It will also make it easier for consumer to hand on their loans from one lender to another.

Anil Kothuri, CEO, Edelweiss Housing Finance, said the latest enlargement of 25 bps in policy rates will be mirrored by a commensurate increase in lending rates. Request for home loans, however, continues to hold despite a 24% increase in EMIs over the background year.

Source: Chandigarh Tribune

Loans made costlier, but RBI frees deposit rates

22.05.12

Guardedness Bank of India on Tuesday again hiked its policy rate — at which it lends to banks — the 13th values bright and early in 19 months, to squeeze money supply in order to contain outcry to rein in inflation, which is hovering at 9.72% despite long-drawn measures. This set the condition for banks to hike rates on home, auto and consumer loans yet again.

But the central bank also freed up savings bank deposits from count control — which means that you can get more than the 4% currently being offered on savings deposits.

The rank will now depend on what competing banks offer. Yes Bank promptly responded by hiking its savings lay rate to 6%.

Also, after its half-yearly policy review, the RBI announced that borrowers who wanted to pay back to the quick loans ahead of maturity might do so without a pre-payment penalty.

"We will pursue with the banks to do this (ending prepayment penalties) as without delay as possible," RBI governor Duvvuri Subbarao told reporters.

Home and auto advance consumers may yet get a breather. "There is no immediate pressure to hike lending rate and we will take a sentence later," said Shikha Sharma, chief executive officer, Axis Bank.

RBI also lowered GDP evolvement projection for the current fiscal to 7.6% from the earlier 8%.

Source: Hindustan Times