RBI hikes repo rate; this is what will happen to your EMIs

Your equated monthly installments (EMIs) may go up marginally after Reserve Bank of India (RBI) hiked repo rate, the rate at which it lends to banks, to 6.50%, a second consecutive hike of 0.25%. RBI, repo rate, 

RBI hikes repo rate; this is what will happen to your EMIs
Your equated monthly installments (EMIs) may go up marginally after Reserve Bank of India (RBI) hiked repo rate, the rate at which it lends to banks, to 6.50%. Image source: Reuters
By Manju AB
Updated: Thu, Aug 02, 2018
09:33 am
ZeeBiz WebDesk
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Your equated monthly installments (EMIs) may go up marginally after Reserve Bank of India (RBI) hiked repo rate, the rate at which it lends to banks, to 6.50%, a second consecutive hike of 0.25%.

However, banks say that interest rate hike may not be sharp unless there is a sudden rise in credit demand. With bank credit continuing to show tepid growth, banks will have room only to hike rates marginally. So if you are planning to buy a house or a car, bankers say that should be availed at the earliest. And if you are an existing customer, you are likely to continue on the same rates until your reset date.

Rajnish Kumar, chairman, State Bank of India, told DNA Money, "Our asset liability committee is meeting on August 26. We will take a call then depending on our funding cost. But we may not hike our lending rates just yet. But certainly lending rates are going to remain stable with no possibility of it coming down." SBI controls about a quarter of the bank credit in the country.

SBI realigned its deposit rates with the market this week, hiking rates on retail deposits of below Rs 1 crore across longer maturities by 0.05% to 0.10% while interest rates on deposit of over two years have gone up by 0.1% and the hike on tenures of one year but less than two years was at 0.05%. This hike in deposit rates may lead to a small rise in lending rates. However, the bank maintained its MCLR at 7.90% to 8.45%, making it one of the lowest rates in the market. Close competitors like ICICI Bank has MCLR at 8.05% to 8.40% and HDFC Bank at 8.05% to 8.70%.

Crisil said in its report that bank credit is still not broad-based. "Bank credit continues to grow in double-digits, and logged 12.4% on-year growth as of July 20, 2018. However, growth was still not broad-based as industrial credit growth remains anaemic. As of June 2018, industrial credit (which accounts for 34% of gross bank credit) grew 1% on-year, while the services sector (which accounts for 26% of gross bank credit) and retail segment (which accounts for 25% of gross credit) logged double-digit growth of 23% and 18% over the previous year.

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Ashutosh Khajuria, executive director, Federal Bank, said, "The rise in lending rates happen with a lag. After deposit rates go up the lending rates will also rise, but only marginally because 90% of the funding cost of banks come from the term deposit, savings deposit and the current deposits. If term deposit rates go up, then the lending rates will go up. But two rate hikes with a neutral stance is a comfort for both bankers and borrowers."

The next monetary policy of the RBI will be announced on October 5. The six-member monetary policy committee voted 5:1 in favour of the rate hike while Ravindra H Dholakia, was the sole voter against a rate hike.

WHAT BANKERS SAY

  • If you are planning to buy a house or a car, bankers say that should be availed at the earliest  
  • If you are an existing customer, you are likely to continue on the same rates until your reset date

Source: DNA Money

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