Interest rates hikes on Car and Home Loans

Get prepared to shell out more in EMIs as banks have begun to raise rates

, including prime lending and base rates. On Tuesday, private sector majorsHDFC Bankand ICICI Bank hiked their base rates, indicating a rise in cost of borrowing for customers. ICICI Bank also raised deposit rates for various tenures.

The hike in base rates means that new customers taking housing and car loan from ICICI Bank and car loan only from HDFC Bank will have to pay higher rate of interest. Since Housing Development Finance Corp (HDFC) has not raised rates yet, those takinghome loans from HDFC Bank will not have to pay higher rates. This is because HDFC Bank's home loan rate is linked to HDFC's rates. Over the last few days several banks, PSU and private, have raised their rates. On October 1, banking majorSBI had raised deposit rates but held on to its base rates "for the time being", indicating it could also raise its base rate any time soon. On Tuesday, HDFC Bank said it has increased its base rate by 25 basis points to 7.5% per annum from 7.25% earlier, while ICICI Bank too raised its base rate by 25 basis points to 7.75%. While the increased rate for HDFC Bank customers is effective Tuesday, forICICI customers the hike in rate is effective Wednesday.

Over the past days, several other banks have raised rates. These hikes came as a reaction to the RBI's decision on September 16 to hike repo rate (the rate at which banks borrow money from the central bank) and also reverse repo rate (the rate which RBI pays to banks when they park their excess liquidity with the central bank), mainly to rein in the runaway inflation.

For example, on September 24, HDFC Bank had raised fixed deposit rates for two tenures 6 months 16 days, and 6 months 17 days to 9 months 15 days by 50 basis points each to 6.75% and 6.75% per annum, respectively.

Interest rates hikes on Car and Home Loans

By: Bhavana Jhingan

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