Loans get expensive

Borrowers may have to shell out more for for their home and auto loans in the near future.

Borrowers may have to shell out more for for their home and auto loans in the near future. ICICI Bank and HDFC have discontinued their special home loan rates popularly known as teaser rates. ICICI Bank,HDFC Bank and Kotak Mahindra Bank have also hiked their auto loan rates by 50 basis points starting March 5. However,banks have not hiked their prime lending rate just yet and the higher rates will be applicable for new borrowers.

ICICI,Indias largest private sector bank,will discontinue its 8.25 per cent home loan scheme from March 1. The normal rates for ICICI Banks home loans up to Rs 30 lakh are 8.75 per cent,loans between Rs 30-50 lakh at 9 per cent and those above Rs 50 lakh,at 9.50 per cent. HDFC too has discontinued its 8.25 per cent home loan offer. State Bank of India SBI has already hinted at scrapping the scheme by the end of March or even earlier.

Many other banks,including Union Bank,Axis Bank and Punjab National Bank have already discontinued their special home loan schemes. Similarly,Kotak Mahindra Bank has hiked interest rates on home loans by 50 basis points.

Auto loan rates are also set to rise across the board. ICICI Bank has raised auto loan rack rates by 25-50 bps starting Friday. The new rates will depend on the segment and tenor of auto loans and range from 9.75-11 per cent. Kotak Mahindra Prime has raised auto loans rates by 50 bps from Friday. HDFC Bank has hiked auto loan rate by up to 100 basis points. Other banks are also getting ready jack up auto loans.

The rise in interest rates follows the signals from the last credit policy of the Reserve Bank of India when it hiked the cash reserve ratio by 75 basis points. IDBI Bank and HDFC Bank had also hiked interest rates on deposits recently. Lending rates reflect the increase in borrowing cost observed over the last 6-8 weeks. While we had absorbed the increase in cost for the month of February,it now needs to be passed on, said an official of a private sector bank.

However,public sector banks are unlikely to increase the retail loan rates in a hurry. State Bank of India chairman OP Bhatt recently hinted that lending rates may go up only from the first quarter of the next fiscal. SBI is likely to take a call on hiking the lending rates by March-end.

However,teaser rates on home loans will come to an end by March end. Indicating the central banks discomfort with such teaser offers,especially when bad loans in the domestic banking system are on a rise,RBI deputy governor Usha Thorat had last month said,some teaser rates by banks is a cause of concern. In a bid to woo customers,banks like SBI,Axis Bank and ICICI Bank have offered a special or a fixed rate on their home loans in the first two years,following which the rate would be charged on the floating rate basis.