Policy rate hike may affect EMIs of loans

7 December, 2022 | Vaishali Sharma

rbi policy hike National

The Monetary Policy Committee meeting, which ended on Wednesday, was the centre of attentio

The Monetary Policy Committee meeting, which ended on Wednesday, was the centre of attention. The rate rise slowed to 35 basis points in December, as expected, from 50 basis points in October. The question is whether this will have any impact on the general public. Citizens who take out bank loans will be affected if the lender decides to raise their benchmark lending rates.

Banks connected their lending rates to repo rates on different term loans, and changes in the repo rate will affect citizens’ equated monthly instalments (EMIs). During the last seven months, banks have raised their benchmark lending rates, causing EMIs to rise. The policy repo rate is now 6.25 percent. As a result, the standing deposit facility (SDF) rate has been reduced to 6%, while the marginal standing facility (MSF) rate and the bank rate have been reduced to 6.50%.

SDF is a monetary instrument that allows banks to park their access liquidity with the Reserve Bank of India (RBI) without requiring any collateral. MSF is a mechanism created by the RBI that allows scheduled commercial banks to acquire liquidity overnight if inter-bank liquidity becomes fully unavailable.

Bank lending rates are projected to climb as the cost of money continues to rise. Vehicle, housing, and personal loan EMIs will also rise. Banks’ external benchmark linked lending rate (EBLR) will rise by 35 basis points because such loans are linked to the repo rate. Since the rate hike was announced, banks have not announced any increases in lending rates.

SBI is currently offering home loan rates as low as 8.40 per cent under its festive offer. On concession, the lender is giving 15 basis points to 30 basis points on its home loans from October 4, 2022, till January 31 next year. The lender said it has zero processing fees on SBI’s regular and top-up home loans. These rates might change according to the new repo rate change.

As of now, HDFC Bank’s retail prime lending rate is 17.95 per cent. Its rates are 8.60-9.10 per cent for women salaried borrowers on home loans up to Rs 30 lakh, the rate is between 8.60-9.10 per cent for self-employed. For others, the rate is 8.65-9.15 per cent if the borrower is salaried and 8.65-9.15 per cent if they are self-employed.