HDFC Bank hikes Home Loan Interest Rates, Repo Rate stays Same; Know the Reason

HDFC Bank, India’s largest private sector lender, has gradually hiked its repo rate-linked home loan interest rates since January of this year.

The rates were raised despite the fact that the Reserve Bank of India has held the repo rate steady since April of last year. As the name implies, repo rate-linked home loan rates should fluctuate in lockstep with changes in the repo rate.

The hikes only apply to freshly sanctioned loans, not existing ones, so older borrowers will be unaffected.

In January, the lowest interest rate on a Rs.50 lakh home loan was 8.35 percent, but the lowest rate now is 8.70 percent. So, in three months, HDFC Bank has effectively hiked home loan rates by 35 basis points (bps). One basis point equals one-hundredth of a percentage point.

All retail loans approved after October 1, 2019, are linked to an external benchmark, which in most banks is the repo rate. Non-banking financial entities, like as HDFC, which merged with HDFC Bank in July last year, are not required to follow the external benchmark regime.

Factors contributing to a rise in Home Loan Rates

A few months before the merger with HDFC Bank, HDFC Ltd was aggressively offering home loans in the 8.30 percent to 8.45 percent area. Following the merger, HDFC Bank has been boosting portfolio rates, citing an increase in funding costs, this may be one cause for hiking in loan rates.

According to Paisa Bazaar’s interest rate data, Axis Bank and Karur Vysya Bank upped their effective new home loan rates by 5 basis points this year. In January, Axis Bank and Karur Vysya Bank offered the lowest home loan rates for a Rs 50 lakh loan, at 8.70 percent and 8.95 percent respectively. From March, these rates increased to 8.75 percent at Axis Bank and 9 percent at Karur Vysya Bank.

Nationalized lenders, such as the State Bank of India, the Bank of Baroda, and the Bank of India, have not raised their rates.

Who is impacted by this?

It is stated that HDFC Bank’s new repo-linked interest rate will apply to new home loans. So, shifting an existing loan from another bank to HDFC Bank or applying for a new home loan today will result in higher rates, based on the current spread.