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Last Updated : Apr 10, 2018 10:12 PM IST | Source: Moneycontrol.com

In a first since December 2013, HDFC raises lending rate by 20 bps

The retail benchmark prime lending rate (BPLR) increase by HDFC is the first since December 2013, signaling a rate hike cycle in loan rates across the finance sector.

Beena Parmar @BeenaParmar

After HDFC Ltd, largest mortgage financier in private sector, raised its lending rate by 20 basis points (bps), home buyers are set to shell out more in their EMIs or the equated monthly installments.

The retail benchmark prime lending rate (BPLR) increase by HDFC is the first since December 2013, signaling a rate hike cycle in loan rates across the finance sector.

With this rate increase, loans between Rs 30 lakh to Rs 75 lakh will be available at 8.55 percent (against 8.35 percent) for women borrowers and 8.60 percent (from 8.40 percent) for others. For loans above Rs 75 lakh it will be 8.65 percent for women and 8.70 percent for others.

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On loans under Rs 30 lakh (priority sector loans) a woman borrower with HDFC will now have to pay 8.40 percent, up by 5 bps from 8.35 percent, while other borrowers will be charged 8.45 percent.

Despite no rate increases by the Reserve Bank of India, several banks have started raising interest rates since late 2017 because of the high cost of funds.

Between July 2017 and now, 10-year government bond yields have also risen 100 bps, which largely reflect interest rates by lenders. Although yields have come down since February-March, they are still high.

Also Read: Interest rates on loans may rise even if RBI's policy rate remains

It started with the private sector lenders like Axis Bank, Yes Bank and Kotak Mahindra Bank raising their marginal cost of funding-based lending rates (MCLR), and gradually percolated down to all the banks in the system including the largest lender State Bank of India, Punjab National Bank, Allahabad Bank.

“All lenders have increased it by up to 20 bps from their October to November levels. They will remain around these levels of over 8.40-odd percent. I believe the current levels will remain for now, unless bond yields spike from current levels of 7.25 percent,” said Ashwini Kumar Hooda, Deputy MD at Indiabulls Housing Finance.

Last month, SBI marginally increased its base rate to 8.70 percent, up 5 basis points, from 8.65 percent. This was the first rate hike in five years from the SBI.

SBI has attributed the base rate hike to the increase in term deposit rates. According to a senior SBI official, the cost of deposits go up, it is followed by increase in the base rate (minimum lending rate) as well.

Since January 2015, when the accommodative cycle of monetary policy commenced, the median base rate has declined by 80 bps, as against the cumulative decline of 200 bps in the policy repo rate. Since April 2016, MCLR has declined by as much as 105 bps in some cases, RBI data shows.

However, given that interest rates are on the rise both globally and domestically, cost of borrowing is only bound to up go from here.

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First Published on Apr 10, 2018 10:12 pm
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