Tag: home loan rates India

RBI ups repo rate by 25 bps; markets in free fall

Mumbai, Sept 20:  The Hindu Business Line

In his first credit policy since taking over earlier this month, the RBI Governor, Raghuram Rajan, has hiked the key policy repo rate.

The RBI has increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 per cent to 7.5 per cent with immediate effect.

It has also reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25 per cent to 9.5 per cent with immediate effect. MSF is the rate at which banks borrow from the central bank.

The RBI has reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 per cent effective from the fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0 per cent.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 per cent and the Bank Rate stands reduced to 9.5 per cent with immediate effect. With these changes, the MSF rate and the Bank Rate are recalibrated to 200 basis points above the repo rate.

“The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately,” RBI Governor, Raghuram Rajan, said in the mid-quarter policy review statement.

Highlights of the monetary policy review

Stock markets reacted negatively to the policy announcement. The Bombay Stock Exchange’s sensitive index Sensex dropped nearly 500 points to a level of 20,155 points at 11.30 a.m, minutes after the announcement. Except software majors – TCS, Wipro, Infosys and pharma major Sun Pharma,which were flat, all other constituents of the index were in the red.

The rupee opened at 62.04, moved up slightly to 61.88 before reversing and trading at 62.38 to the dollar at 11.32 a.m.

Cautious unwinding of exceptional measures

Explaining the rationale for its moves, the RBI said in a statement that it had earlier taken a number of exceptional measures to tighten liquidity with a view to dampening volatility in the foreign exchange market. These had the impact of raising the effective policy rate to 10.25 per cent, and were intended to maintain tight liquidity conditions till there was improved prospects of stable funding took efect. With the improvement in the external environment, the RBI is now in a position to contemplate easing these measures, it said.

Inflation high

Conceding that “inflation is high and household financial savings is lower than desirable”, the RBI hopes that a better harvest and negative output gap will help offset the consequences of the currency depreciation and inflation.

Costlier food items sent wholesale price inflation to a six-month high of 6.1 per cent in August.

Growth trailing

Stating that economic growth has weakened with continuing sluggishness in industrial activity and services, the RBI said the pace of infrastructure project completion is subdued and the start of new projects remains muted.

“Consequently, growth is trailing below potential and the output gap is widening. Some pick-up is expected on account of the brightening prospects for agriculture due to kharif output and the upturn in exports,” it said.

Rajan said concerns on the current account deficit have been mitigated by steps taken by the government and the RBI.

Also, steps have been taken to improve the environment for external financing, turning the focus to internal determinants of the value of the rupee, primarily the fiscal deficit and domestic inflation, he said.

“Further actions need not be announced only on policy dates. However, any further change in the minimum daily maintenance of the CRR is not contemplated,” he added.

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%.

Bank loans may not get cheaper soon

By Atmadip Ray, ET Bureau | 3 May, 2013

KOLKATA: Consumer loans may not get cheaper immediately despite a repo rate cut since banks continued to pay high to depositors to improve a modest collection.

Top bankers said that RBI’s growth direction with repo rate cut has pleased them but the absence of a cut in cash reserve ratio will not allow them to cut lending rates across the spectrum. A reduction in the reserve ratio would have released funds for banks to lend without looking for deposit mobilisation at a high price. Banks are forced to keep rates high to overcome a slow deposit growth.

“A mere repo rate cut will not help us in terms of lowering of lending rates,” Punjab National Bank chairman and managing director KR Kamath said. “One can’t go for drastic reduction of deposit rates as mobilisation has been sluggish. The issue is when it is going to be the right time for a deposit rate cut. Till such time, it will be difficult to reduce lending rates across the board.”

RBI said its assessment of the growth-inflation dynamic does not allow further monetary easing. However, the central bank governor D Subbarao assured banks that it will to actively manage liquidity to reinforce monetary transmission, consistent with the growth-inflation balance.

“The call in reduction in base rate may be taken over a period of time and would depend upon, how the deposit rates move,” Corporation Bank chief Ajai Kumar said. “In the present scenario where deposit mobilisation is still not picking up, it would be too early to comment on lending rate cut.”

A 25 basis point cut in repo rate, the rate at which RBI lends to bank, will reduce the cost of fund only for borrower banks. But banks which park their excess fund with the central bank will now earn 25 basis point less as reverse repo rate has been lowered by similar extent.

Uco Bank chief Arun Kaul said that cutting rates would depend upon cost of funds and how much it comes down in the near future. These lenders said they will try to adjust rates for some selective sectors with strong growth links.

“We need to do a fine balancing act for lowering lending rates for small sectors,” United Bank of India chairperson and managing director Archana Bhargava said.

How to secure your Home Loan?

With the high competition between banks it has become so easy to raise a home loan for purchase of property in a week days of time with the best and least home loan interest rates, but the actual challenge lays post disbursement of the loan. There are people who sold their property or left them to bank due to failure of EMI payments. These are some cases where people are suffering for not knowing how to manage the loan post home loan disbursement.

The process of securing your home loan starts from the day 1 when you start the home loan process. Every customer is advised to take photo copies of all documents submitted to bank and keep it for future references and cross check the home loan rates with other banks before applying.  Most of the customers sign the home loan applications and agreements when they are blank which is not at all suggestible, will you sign a blank cheque without writing anything and give it to somebody then why you are ok to sign the home loan agreement without filling it, ask the bank officials to fill the agreement and then sign it.

All the customers will sign two copies of home loan agreements one of which will be received by customer post home loan disbursement. The agreement will have all the details of your loan and their terms i.e loan amount, interest rate, repayment period, EMI, Processing fee paid, list of documents deposited etc. one should retain this copy of agreement till the loan completion. The agreement will have a copy of General Power of Attorney which should be read before signing if any clause is objectionable to you then you can ask bank for a clarification.

Along with these one should make more down payment towards the property and raise lesser loan amount which will ease the process of making EMI payments and gives us the scope of saving to pre close the loan. On a blink calculation any customers who go for a home loan will pay 125% of the loan amount as interest to the bank. So opting for lesser loan amount will save money and will secure the loan. It is always advisable to the customer to opt for Home Loan Linked Life Insurance which covers the loan amount in case of death of the applicant and waves the remaining EMI’s by releasing the property from the bank. Banks fund for these insurances along with home loan and it is a onetime premium which will secure both the home loan and applicant’s loan burden.

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