Banks pass on rate hikes within week; 40-month of additional EMIs on home loan added
By Our Special Correspondent
New Delhi, February 20: Banks have been on an overdrive to pass on the repo rate hikes by the Reserve Bank of India (RBI) to the home loan customers. With the latest rate hike, the RBI has taken the Repo Rate to 6.50 per cent.
The RBI action to calm down the rising inflation by hiking the Repo Rate has begun hurting the home loan customers, who have seen their EMI (Equated Monthly Installment) tenure being pushed further. A rough calculation showed that on an outstanding principal of Rs 20 lakh on the home loan, the 25 basis point hike in the repo rate reflected in additional four months of EMIs by the customers.
Incidentally, the banks have been practicing two contrasting approaches on rates linked to the RBI actions. The banks aggressively sold the MCLR-linked home loans to the customers. But when the banks were adjusting the rates linked to the Repo Rate once in six months when the RBI was lowering the rates a few years ago. But the banks are hiking the loan rates within a week of the RBI announcement after the Repo Rate hikes.
The aggressive rate hikes by the RBI, which have been passed on to the customers in super speed by the banks, have shown that the customers would have to at least 40 more installments of the EMIs. On a principal outstanding of Rs 20 lakh, a rough calculation showed a customer would have to shell out at least Rs 8.80 lakh more to the banks by the end of the EMI tenure if there is no further change in the rates.
It may be recalled that the home loans, which were at seven per cent MLCR rate has now gone to 9.50 per cent, a steep rise of about 30 per cent in the rates in a short span of time. “Your loan linked to the Repo rate is reset by the Bank once in three months as per the Sanction letter and the Loan Agreement signed between you and the Bank pursuant thereto. As per the agreed terms and conditions stipulated in the Sanction Letter and the Loan Agreement and in lines with our subsequent communication, it is agreed by you that the interest rate reset can change under REPO once in three months or as decided by the Bank, whichever is earlier,” a communication of the Axis Bank to a customer stated. The bank passed on the rate hike effected on February 14 by the RBI within six days against the “agreement of three months and lower”.
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