Month: August 2013

EMIs set to rise as ICICI Bank, HDFC hike rates

23 Aug 2013, ENS Economic Bureau

Borrowers will have to shell out more money as EMI (equated monthly instalment) on their home and auto loans with two leading lenders, ICICI Bank and HDFC, jacking up interest rates.

ICICI Bank, India’s second largest lender, has announced an increase of 0.25 per cent in its base rate with effect from August 23. The revised rate will be 10 per cent as against 9.75 per cent at present. Home loan major HDFC has increased its Retail Prime Lending Rate (RPLR), on which its Adjustable Rate Home Loans (ARHL) is benchmarked, by 0.25 per cent with effect from August 23.

“In February this year HDFC had reduced its RPLR by 10 bps and hence on a net basis the RPLR is higher only by 15 bps since January 2013,” HDFC said.

ICICI Bank has also announced an increase of 0.25 per cent in its benchmark prime-lending rate and in its Floating Reference Rate (FRR) for consumer loans (including home loans) with effect from August 23. This benchmark rate is used for determining interest rates on loans and advances sanctioned up to June 30, 2010. With effect from July 1, 2010, interest rates on new loans and advances, including consumer loans, are determined with reference to I-Base.

ICICI Bank has also announced an increase of 0.25 per cent in its benchmark prime-lending rate and in its Floating Reference Rate (FRR) for consumer loans (including home loans) with effect from August 23, 2013.

The above benchmark rates are used for determining interest rates on loans and advances sanctioned up to June 30, 2010.

The fixed rate customers will not be impacted by the above revision and their contracted rates will remain unchanged.

The RBI’s cash-tightening measures had pushed short-term money market rates along with government bond yields to higher levels, creating fear of increase in cost of funds for financial institutions. But RBI had indicated that these measures were short-term in nature and would be rolled back as and when the rupee is stabilised.

As of now, the rate hike is restricted to private banks as their cost of funds has increased while none of the leading PSU banks have announced a hike in rates so far. Banks with heavy reliance on the wholesale funding are the ones raising the lending rates as the rates in the money markets hardened following the RBI moves.

“Our cost of funds is in tact. SBI is also flush with deposits,” SBI chairman Pratip Chaudhuri said while ruling out a hike in rates last week.

On Monday, Axis Bank hiked its base rate, the minimum lending rate, by 25 basis points, to 10.25 per cent, pushing up the cost of home and auto loans. This means all categories of loans will become costlier at least by 0.25 per cent. Earlier this month, HDFC Bank, the country’s second largest private lender, had raised the base rate to 9.80 per cent from 9.60 per cent.

Increased cost of funds

* ICICI Bank has announced an increase of 0.25% in its base rate with effect from August 23

* The revised rate will be 10% as against 9.75% at present

* HDFC has increased its Retail Prime Lending Rate (RPLR), on which its Adjustable Rate Home Loans (ARHL) is benchmarked, by 0.25% with effect from August 23

* The RBI’s cash-tightening measures had pushed short-term money market rates along with government bond yields to higher levels

Home, auto and personal loans to cost more

20 Aug, 2013, TNN.

MUMBAI: Retail customers of home, auto and consumer loans should brace themselves for a rough ride ahead as signals emerging from the bond market point towards an increase in interest rates. And this rise could be sharp and quick.

The indications are derived from the benchmark 10-year yield on government securities (G-secs), which touched 9.27% per annum on Monday, a five-year high and the highest in the post-Lehman era. The 10-year benchmark rate is the highest risk-free rate that one can get in the country, and hence this is the benchmark rate for banks and other lenders for setting their onward lending rates for customers.

The current level is also close to the decade high rate of 9.60%, bond dealers said. The sharp rise is mainly because of the tough liquidity situation in the market triggered by various monetary tightening measures since July 15. At close the 10-year yield was at 9.22%, up 34 basis points (100 basis points = 1 percentage point) from its Friday close at 8.88%. Since May 24, benchmark yield has risen by 2.11 percentage points, and since August 1, by 1.06 percentage points to Monday’s close at 9.22% per annum.

According to industry analysts and debt fund managers, the rise in rates would hurt those home loan customers who have gone for the floating rate plan, new auto and other consumer loan customers, besides all the large and small corporate borrowers. However, the silver lining for customers would be that along with higher borrowing rates, fixed deposit rates would also rise and one can invest during those high rates to earn better returns for several months.

In addition to the benchmark rate, yields on all other long term G-secs are either already above the 9.5% mark or very close to that level. Moreover RBI is not infusing liquidity through open market operations (OMOs), which is by buying G-secs from the market, pointed out a dealer with a local bond house.

“Local as well as global factors are contributing to this rise in rates in India,” a top debt fund manager said. “On the local front, RBI’s recent steps to curb liquidity to stem the weakness of the rupee has not had its intended impact and that is leading bond market players to assign high uncertainty premium to G-sec rates,” the fund manager said.

Since July 15, RBI has tightened liquidity in the system, assuming that would force market players to buy less dollars in the forward market and hence would stem the weakness of the Indian currency. However, since July 15, the rupee has depreciated nearly 5.5%, indicating that the measures have failed. “On the global front, the fears of tapering off of by US Fed is also weakening emerging market currencies,” the fund manager said.

Axis Bank on Monday raised its base rate by 25 bps to 10.25%. Earlier Andhra Bank and Karur Vysya Bank also raised its base rate by 25 basis points The country’s largest private lender ICICI Bank hiked its deposit rates by 50 to 75 basis points. Canara Bank also hiked fixed deposit rates in some maturities.

Along with the rise in bond yields, the rate of inflation is also going up. On Wednesday, the wholesale price index (WPI) for July showed a jump to 5.79%, the fastest rate seen in the last five months and also higher than the RBI’s comfort level of 5.5%. According to Bloomberg data, the last time the market saw 9% yield on a 10-year paper was in late August, 2008. Since then the benchmark rate has remained below the 9% level, and in between falling as low as 5.24% in early January 2009.

Fund managers believe that the government has to instill confidence among investors and that could bring in the much-needed stability in the bond market. Once that stability comes, investors would come back to invest which would lead to soften rates. “Yields are looking very attractive at this point of time. Once people see some stability on the currency front, we may see large follow up buying in bonds, including in G-secs,” said Amit Tripathi, head of fixed income, Reliance Mutual Fund.

On Monday, there was spillover impact of the hardening of the rates in the auction for government papers also. In the auction for 28-day cash management bill (CMB) for Rs 11,000 crore, the cut-off yield was fixed at Rs 12.24% per annum. Compared to Monday’s auction, the cut-off yield in the auction for 34-day CMB on August 13 was 11.94%.

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