Home and car loans to cost more

FOLLOWING TUESDAY'S 25-basis-points hike in short-term rates by the Reserve Bank of India, home loans and consumers loans, like auto loans, are expected to become costlier by 50 basis points soon.

Bankers had been waiting for the RBI's policy announcement. "The cost of funds is clearly under pressure; we were waiting for the RBI decisions," said a leading banker.

Sources said HDFC was set to increase home-loan rates by 50 basis points (to 9.5 per cent for floating-rate loans and 10.5 per cent for fixed-rate loans).

But ICICI Bank is not going to increase the rate immediately. Its executive director Chanda Kochar said: "We'll evaluate the liquidity scenario and cost of funds, and take a final decision in case our margins aren't protected." Currently, it was not the case, she said. ICICI Bank had increased home-loan rates by 50 basis points last month.

S.C. Gupta, CMD, Punjab National Bank, said the writing on the wall was clear — that interest rates would be increased. "In order to guard profitability, we've to protect interest margins," he said. "As far as PNB is concerned, we'll take a final decision in a week's time.”

Meanwhile, Finance Minister P. Chidambaram on Tuesday defended RBI’s decision to hike repo and reverse repo rates, saying the hike in short term interest rates would not impact the economic growth rates.

Both Palaniappan Chidambaram and RBI Governor Y.V. Reddy seem to be optimistic on clocking a near 8 per cent growth rate despite three hikes in the interest rates within this fiscal to rein-in inflationary expectations.