HDFC raises lending rates by 5 bps for existing customers

Housing Development Finance Corporation (HDFC) on Sunday announced a 5-basis points (bps) hike in its retail prime lending rate (RPLR) to 16.1%, to which its floating rate home loans are linked. While the mortgage lender’s existing customers will have to shell out more as and when their loans come up for reset, rates on new loans will remain unchanged as new customers will get a 5-bps discount on the RPLR. New loans will continue to be priced between 6.7% and 7.15%.

HDFC’s move to raise lending rates for existing customers follows similar hikes in April by State Bank of India (SBI), Bank of Baroda (BoB), Axis Bank and Kotak Mahindra Bank. Home loan rates at SBI currently start at 6.65% and at ICICI Bank from 6.7%. Rates on new retail loans remain untouched across the system so far.

The rate cycle is widely believed to have turned after the Reserve Bank of India (RBI) signalled a hardening in its policy stance as consumer inflation surged in the early months of 2022. A section of analysts now expect the Monetary Policy Committee (MPC) to hike the repo rate by as much as 75 bps in FY22, which could result in a quick uptrend in retail lending rates. Most new retail and small business loan rates are pegged to the repo rate.

In a report dated April 21, analysts at ICICI Securities said that with an increase in benchmark rates over FY23, the pace of transmission will be more effective as the proportion of the banking sector’s floating rate loans linked to external benchmarks rise further from 39.2% in December 2021. “Proportion of loans linked to MCLR is down to 53% as of December 2021 from 77.7% in FY20, and a mere 5% of floating rate loans are linked to the base rate,” the report said.

The home loan market had seen particularly intense competition through much of 2021 as interest rates hit all-time lows and lenders went for aggressive pricing measures to cash in on stamp duty benefits being doled out by states.

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