Home, car loans to cost more, banks hike rates before RBI .

Posted on by KNBT

Reserve Bank of India

It isn’t great news for home- and car-buyers seeking financing support after the Reserve Bank of India raised the benchmark repo rate on Wednesday by 25 basis points to 6.5 percent.

Pre-empting the regulator’s move to raise the headline rate, at least three banks — Union Bank of India, Kotak Mahindra BankNSE -2.48 % and Karnataka bankNSE -1.49 % — increased their marginal cost of lending rates (MCLR) by 5-10 basis points. The largest mortgage loan providers such as State Bank of India (SBI), ICICI BankNSE -0.25 % and Punjab National Bank kept their MCLR rates unchanged. On July 31, SBI had raised the term deposit rates on select maturities by 5-10 basis points.

With the policy rate increase expected to get transmitted with a lag, customers will have to brace themselves for much higher rates in the future.

“The monetary policy transmission operates at several quarters of lag and as a result, the two rate hikes of June and this policy will play out only in due course in our immediate projections because they will take some time to bite on the inflation,” said Viral Acharya, deputy governor, RBI.

On Wednesday, Union Bank of India raised its one-year MCLR by 10 basis points to 8.55 percent while Kotak Mahindra Bank raised its one-month and three-month rates by 5 basis points to 8.20 percent and 8.55 percent, respectively. It kept its one-year rates unchanged at 8.95 percent.

Banks have been on a rate increasing spree after the central bank raised its repo rate in June this year after a gap of four years. The last time the central bank had effected consecutive rate increases was in October 2013.

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