hdfc: Home loan borrowers face higher outgo in goodbye to easy money

Home loan borrowers are bracing for more increases in their monthly spending on their mortgages as lenders follow the Reserve’s (RBI) signal and raise interest rates at the fastest pace in at least a decade.

On Saturday, Housing Development Finance Corp. (

), India’s largest mortgage lender, has raised its benchmark retail prime lending rate (RPLR) for the fifth time this fiscal year ahead of the RBI’s monetary policy meeting scheduled for Aug. 5.

HDFC increased its RPLR by 25 basis points, bringing the minimum lending rate to 7.80% from 7.55% before the increase. One basis point is 0.01 percentage point.

The increase means assimilated monthly installments (EMI) of, for example, a loan of 50 lakh for a 20-year term, now rising to 41,202 per month at 7.80%, compared to ₹40,433 per month at 7.55% before the elevation.

In total, HDFC has increased its lending rate by 115 basis points since May. India’s largest lender raised interest rates twice in May and June, before the latest hike.

Analysts said the latest hike by HDFC is preemptive, as the central bank is expected to raise the benchmark repo rate, the rate at which banks borrow money, by at least 25 basis points this week.


Raj Khosla, director of financial marketplace MyMoneyMantra, said the rate hike has been the fastest in a decade and is due to an extremely easy liquidity situation that kept interest rates artificially low.

“In a way, it’s kind of a normality returning to rates, but yes, the pace of increases is the fastest we’ve seen in recent history. Rates are also rising in an extraordinary situation where the global macro economy is taking a hit. plays a greater role in the background of the conflict in Ukraine. It is reasonable to assume that tariffs could rise a bit from here,” Khosla said.

Borrowers have faced rising EMIs every month for the past three months. For example, from a low of 6.40% in April, a highly valued HDFC borrower is now paying 7.80% with monthly EMI on a loan of ₹50 lakh, from ₹36,985 to ₹41,202.

HDFC’s main rival and the market leader in home loans among banks

() also increased its repo-linked benchmark rate by as much as 90 basis points this fiscal year.

Alok Choudhary, managing director of retail at SBI, said the bank will rely on fees based on the cost of funds following the RBI’s monetary policy decision on Aug. 5. “We will explore the possibilities after the RBI policy is linked to the repo rate and reflects the rate hike by RBI,” Choudhary.

An ICICI spokesperson also said the bank will hold a talk on the rates after the RBI meeting.

The repo rate of 4.90% comes from a 15-year low as the central bank aggressively cut interest rates during the Covid-19 pandemic to support the economy.

However, global volatilities such as rising oil prices have led to higher inflation around the world. Inflation in India is stubbornly above 7% and above the 6% outer limit of the RBI, forcing the central bank to give up its support for growth at any cost.

Adhil Shetty, CEO of BankBazaar, said the repo is expected to settle at 6% over the next 12 months from 4.90% currently and it is reasonable to assume that mortgage borrowers will also see a similar amount of rate hikes . “It is true that rates have risen sharply and are expected to rise further. Rates have fallen to an all-time low. The rises have been quite sharp over the past three months and borrowers whose rates are linked to the repo can immediately get a refund. Those not pegged to the benchmark may see a delayed impact, but will increase,” Shetty said.

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