Auto and home loans become expensive due to increase in interest rates; know how much will it affect your pocket

Banks and financial institutions have begun to increase interest rates after the RBI raised the repo rate by 50 basis points on Wednesday. As a result, home, auto, and personal loans have become more expensive. ICICI Bank, Bank of Baroda, PNB, Bank of India, Indian Bank, Indian Overseas Bank, and HDFC Ltd have upped their loan rates in response to the hike in the repo rate. Repo rate is the rate at which the Reserve Bank of India (RBI) lends money to banks to meet their short-term needs.

RBI hiked the benchmark repo rate by 50 basis points to 4.90 percent with immediate effect at its second bi-monthly monetary policy meeting for FY23 on June 8.

It came after an off-cycle rate hike of 40 basis points in May to combat the country’s skyrocketing inflation, which was mostly caused by supply-side issues caused by the Russia-Ukraine conflict.

The repo-based external benchmark lending rate at ICICI Bank has been hiked by 50 basis points to 8.60 percent from 8.10 percent. PNB has raised its repo-based lending rate from 6.90 percent to 7.40 percent, while Bank of Baroda has similarly raised its rate to 7.40 percent. The home loan rates at HDFC Ltd have raised by 0.50 percent. As a result, the 20-year loan will require an additional Rs 31 per lakh payment.

Even before the repo rate was raised, SBI raised the external benchmark lending rate to 7.05 percent. This rate also includes a credit risk premium.

RLLR has been lifted by Indian Bank to 7.70%, while Bank of India has been raised to 7.75%.

With effect from June 10, the RLLR of Chennai-based public sector lender Indian Overseas Bank has been increased to 7.75 percent.

In a regulatory filing on Friday, the Bank of Maharashtra said it had increased the RLLR from 7.20 percent to 7.70 percent with immediate effect.

Not getting profit on deposit

Following a hike in the repo rate, banks promptly raise loan rates, but do not raise deposit rates as quickly. Banks, according to experts, do this to maximise profit. Deposit interest rates are occasionally lowered below the legal limit.

RBI increased repo rate twice in two months

By convening a contingency meeting in May, the RBI raised the repo rate by 40 basis points. Following that, the Monetary Policy Committee (MPC) decided to raise the repo rate by 50 basis points at its meeting on June 8. As a result, the RBI has raised the repo rate by 90 basis points in the last two months.