Click to play videoMumbai: The RBI has once again increased key interest rates and that means costlier loans.
ICICI Bank’s Chanda Kochar said, “Our bottom lines are being affected and if this continues we may have to re-consider our interest rates.”
It’s a prospect that worries 25-year-old Divya Jain. A software engineer in Pune, Divya took a home loan for Rs 20 lakh 18 months ago at an interest rate of 9.25 per cent. But successive rate hikes have taken his interest rate to 10.5 per cent.
Instead of hiking his monthly installments, Divya opted to increase his EMI period from 17 years to 20 years, but says he may not be able to handle a further increase. “Now with the new rates I don’t know how long it would last, maybe 20 years or even more,” Divya said.
So what does this mean for the consumer? The Cash Reserve Ratio (CRR) is the amount that banks have to keep with the RBI. Increasing this means banks are left with less money to lend. Add to this a rise in the Repo Rate, which makes borrowing from the RBI for the banks more expensive.
In this scenario, banks say they have no option but to reconsider their own lending rates.
MD and CEO of ICICI Bank KV Kamath said, “Repo rates are sending a clear signal that interest rates will go up.”
A look at the timeline of changing repo rates over the past four years reveals:
- The repo rate was at the lowest in 2004 at 6 per cent.
- Since then, the RBI has hiked repo rate nine times.
- The latest hike on Tuesday has now brought the repo at 8.5 per cent, a level last seen in 2001.
And even as the bankers blame it on the depreciating credit growth what cannot be denied is the impact this latest move would have on the real estate market in the country.
Along with the consumers, whose budgets are already stretched, real estate developers will also feel the heat of this move, say analysts. But will this impact real estate prices, that is something we will have to wait and watch.
(With inputs from Shilpa Dhamija)
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