ICICI Bank raises home loan rates
Following the repo rate hike announced by RBI in its quarterly policy review on January 31, ICICI Bank has raised interest rates on all advances including home loans by one percentage point. The fixed rate home loan will now cost 12.5% and floating rate home loans between 9.5% and 10.5%.
The rate hike by India’s largest private sector lender comes just a day after the Finance Minister, Mr P. Chidambaram, asked public sector banks to maintain interest rates on home loans at current levels. While it may be politically correct for the public sector banks to hold on to current rates, the increasing pressure on borrowing costs will force them to raise rates sooner or later. Given the huge growth in the economy, the Reserve Bank of India has been taking steps to cool down inflationary trends and to avoid building up of asset price bubbles. There are clear indications that the rate tightening cycle – “measured increase in interest rates” - will continue.
Interest rates on housing loans have risen substantially in the past couple of years. For the existing floating rate borrowers, each reset will mean higher outgo. So far, the upward revision in the rates was being adjusted by banks by increasing the maturity period. Now the banks have started increasing monthly instalments. This may also lead to a rise in delinquencies in a segment that has historically been seen by banks as less risky.
Posts
3 comments:
Hi its too bad for people planning to own there own home.Me included..
My friend had taken an ICICI housing loan some years ago and now with all the increase in interest rates he keeps getting letters from bank about his increase in term.Banks should think about poor people who have taken housing loans and not thier profits only.Its high time our F.M and RBI look into this.
Yes, it's really bad for the borrowers. But, there is not much the Govt. or RBI can do, as interest rates are being detrmined by a complex interplay of various market forces. The FM has asked the public sector banks to refrain from raising housing loan rates, but that is unfair to them, as their private sector couterparts are not bound by such advice.
I agree that the banks are rather prompt in passing on the rising interest cost to the borrowers. They didn't show the same promptness earlier in giving the benefit of lower rates to consumers, when interest rates were falling till few years back.
There is a need to enforce transparency in the way floating rates are revised - for example, linking to some commonly accepted benchmark rate, rather than individual bank's assessment of rising cost of funds. This will work both ways - when interest rates fall or rise. The concept of 'PLR' is quite vague and there is no standard methodology.
Post a Comment