RBI repo hike — Home loan EMIs set to rise as these banks increase interest rates

A number of lenders, including HDFC Bank and Bank of India, hiked their benchmark lending rates after Reserve Bank of India (RBI) announced a repo rate hike by 35 basis points. As a result, the equated monthly installments (EMIs) of these banks will get expensive for those who avail consumer loans such as home and auto loans against the benchmarks.

Private sector HDFC Bank has hiked its marginal cost of funds-based lending rate (MCLR). The one-year MCLR, which acts as benchmark for many consumer loans, has increased by 50 basis points to 8.60 percent, HDFC Bank website said.

The overnight MCLR is 8.30 percent from 8.20 percent, an increase of 10 basis points (bps). The MCLR for one month tenor is 8.30 percent up from 8.25 percent, an increase of 5 bps, according to the bank. HDFC bank’s three-month and six-month MCLR stands at 8.35 percent and 8.45 percent, respectively.

Indian Overseas Bank (IOB) has hiked the MCLR by 15 basis points to 35 basis points across tenures. The bank has also revised its repo-linked lending rate to 9.10 percent. These will be effective from December 10, 2022.

(Source: Indian Overseas Bank)

As per the regulatory filing, the 1-year MCLR is hiked by 20 basis points to 8.25 percent from the current 8.05 percent. The 2-year MCLR will rise by 25 basis points to 8.35 percent from the present 8.10 percent. The 3-year MCLR rate will increase by 30 basis points to 8.40 percent from the current 8.10 percent.

Bank of India (BOI) increased the rate for repo-based loans by 35 basis points. The effective Repo Based Lending Rate (RBLR) is 9.10 percent as per the revised repo rate of 6.25 percent.

Generally, when RBI hikes the repo rate, it increases the cost of funds for banks. Banks will have to pay more for the money they borrow from RBI. Consequently, banks pass on the cost to borrowers by increasing their loan interest rates, making EMIs costlier.

As a result, new and existing borrowers witness increased loan interest rates.

RBI has hiked the repo rate by 190 bps in the past four policies. The first hike was to the tune of 40 bps in May and then 50 basis points in June. It again raised the repo rate by 50 bps in August and then again by 50 bps in September. Considering the recent hike of 35 bps, the total rise comes to 225 bps.

While some banks have increased lending rates, other banks are expected to follow suit. It is just a matter of time when banks would undertake External Benchmark based Lending Rate (EBLR) and Repo-Linked Lending Rate (RLLR) hikes in line with the repo rate.