One Bank Cuts Home Loan Rates, Others Raise Interest

Banks have raised interest rates on some retail loans, revising their marginal cost of lending rate (MCLR) with SBI offering auto loans beginning at 8.85% to customers with high credit scores, a hike from 8.65%; Bank of Baroda charging 8.8%, a rise from 8.7% last month with additional processing fees; Union Bank of India providing car loans starting at 9.15% as against 8.75% earlier; IDFC First Bank increasing interest rates on personal loans from 10.49% to 10.75%; and Karnataka Bank hiking personal loans from 14.21% to 14.28% during the same time period.

However, the home loan interest rate has not been affected as it is linked to the repo rate, which has remained flat since October.

According to the Times of India, banks raised loan interest rates in line with an increase in the cost of funds due to a revision in deposit rates coupled with the tightness in the money markets and the festival season having ended.

Surprisingly, the Bank of Maharashtra reduced its home loan interest rate to 8.35% from 8.5% on January 3 as a tactical move, as home loans have been considered almost risk-free, contributing to the bank”s deposit base with the borrower starting a savings account with the lender.

In terms of deposit rates, banks followed the example of SBI, which hiked its deposit rates by 50 basis points from December 27, which led to an increase in their marginal cost of lending rate, which is a benchmark for commercial loans, and therefore pushed up interest rates in this segment as well.