Marginal increase in EMIs

But if the trend continues, your monthly budget would be stressed

Consumers, whose monthly budgets are already under pressure from rising vegetable prices, has to prepare for an increase in their equated monthly instalments (EMIs).

With base rates increases by two leading banks — State Bank of India (SBI) and HDFC Bank — borrowers will find their equated monthly on home loans increasing marginally. Other leading banks such as, ICICI Bank, Axis Bank and Punjab National Bank are yet to announce any increase in their base rate.

The rise of 20 basis points would translate into a rise in the equated monthly instalment of Rs 12-13 per lakh for home loan customers of SBI, say sources. In other words, if you have taken a home loan of Rs 50 lakh for 15 years, the rise in EMI would be slightly over Rs 600 a month.

The rise in EMI is not significant, but the signals of hardening rates are worrying. Just two months back, in September, SBI increased its base rate by 10 bps leading to rise in both home loan and car loan rates. With another increase of 20 bps now, there will be another round of increases.  

These rate increases have come after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points in September and October. Repo is the rate the RBI charges banks for lending. Consequently, any rise in repo increases the cost of funds for banks.

Another impact of a rising rate regime is the fall in eligibility to acquire a home loan. “When rates rise, prospective home loan customers are impacted because their eligibility will fall in a scenario when salary increases have not been impressive,” says Harsh Roongta, CEO, apnapaisa.com.

The EMI of a Rs 50-lakh loan at 10.3 per cent for 15 years is Rs 54,652. Banks, usually, are comfortable if the EMI does not exceed 40-50 per cent of the take-home salary of the borrower. So, the take-home salary of the borrower should be Rs 1.09 lakh or more to qualify for the home loan product. If the EMI rises, then the salary also has to be more.

Housing finance companies had already increased the home loan rates marginally in the past several months, which has seen loans increase from anywhere between 75 to 100 basis points for all categories of loans.

Personal loans and car loans will not be impacted much because most banks give these on fixed rates. However, SBI’s car loan customers would be impacted because it is only the large player which gives car loans linked to floating rates.

Says R K Dubey, CMD, Canara Bank: "One can't say what the rates will be. We will continue to focus on retail loans."   

There are expectations that if banks become aggressive with deposit mobilisation, their cost of funds will increase further. Even the RBI in its policy statement has told banks to mobilise deposits as a ‘more durable strategy for mitigating mismatches between the supply of, and the demand for, funds.’ If this happens, there are indications that there could be further increase in the lending rates. The consumer’s monthly budget is likely to be under stress for some time.