Home and auto loans are set to get more expensive with State Bank of India and HDFC Bank raising their benchmark rates by 20 basis points on Wednesday. Both the banks raised their base rate to 10% from 9.8%. Following the increase, home loans from SBI will attract 10.3% interest for borrowings up to Rs 30 lakh and 10.5% for loans above Rs 30 lakh. Typically, a 20 basis point hike results in the monthly EMI on a Rs 30 lakh loan going up by Rs 368. SBI’s auto loans are also benchmarked to their base rate and will now attract 10.75% interest. SBI shares fell Rs 63 to Rs 1,810 following the announcement. The country’s largest home finance company, HDFC, offers home loans at 10.4% for amounts up to Rs 30 lakh and 10.65% for loans above that. However, as part of a festive offer, HDFC is giving loans at 10.25% for borrowings up to Rs 30 lakh and 10.5% for loans above the sum until November 15.

HDFC vice chairman and CEO Keki Mistry said the company did not have any immediate plan to raise its lending rates. Other private lenders like Axis Bank and ICICI Bank also said they were not immediately revising their base rate. Though there will be an increase in outgo for new borrowers of SBI, for existing borrowers there will be no increase in the EMI as the tenure of the loan will be extended. Bankers say for borrowers with longterm loans, the overall impact will be offset by drop in lending rates as interest rates tend to move in cycles, rising and falling every two years. Meanwhile, the bond markets appear to be preparing for another hike in the repo rate before the year end. On Wednesday, the yield on the 10-year government bond rose to 8.82% from 8.74% earlier.

The increase in lending rates come on the back of a 25 basis point increase in repo rate by Reserve Bank of India in its monetary policy review on October 29. RBI governor Raghuram Rajan had indicated that inflation, as measured by the wholesale price index, is expected to remain higher than current levels through most of the remaining part of the year, warranting an appropriate policy response. “With inflation risks still tilted to the upside, the RBI has to keep its inflation guards up and stand ready, if needed, to raise rates further to bring inflation under control,” Lief Eskesen, HSBC’s chief economist for India and ASEAN, said following the policy announcement.

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