M A I N   N E W S

Housing loans likely to cost more
Banks may pass burden of RBI’s hike in benchmark rates to consumers
Sanjeev Sharma
Tribune News Service

New Delhi, June 16
Brushing aside concerns on slowing growth, the Reserve Bank of India (RBI) today went ahead with a 25 basis points increase in benchmark rates, the 10th hike in 15 months. The repo (rate at which RBI lends to banks) and reverse repo (rate at which it borrows) were raised by 25 bps each. These now stand at 7.50 per cent and 6.50 per cent, respectively.

So, home, auto and personal loans would become even more expensive as indications are that banks and real estate companies may pass on the rate hikes to the consumers.

The BSE Sensex fell by 146 points to dip below the 18,000 mark after three weeks as concerns of rising interest rates hurting demand and growth aggravated. Sensex heavyweight, Reliance Industries Ltd (RIL) closed near a two year low at Rs 887 on downgrades by brokerages.

RBI Governor, D Subbarao, said inflation persisted at uncomfortable levels. He said the headline numbers understated the pressures because fuel prices were yet to reflect global crude oil prices. Incidentally, petrol prices have gone up, diesel and LPG g\as hike has been put on hold and a diesel price hike is a vital peg for inflation.

The RBI said that even as signs of moderation were visible in some sectors, broad indicators do not suggest a sharp or broad-based deceleration. So, some short-run deceleration in growth may be unavoidable in bringing inflation under control, it said.

Reacting to the RBI move, Finance Minister Pranab Mukherjee said there was need for better price stability for sustaining growth in the medium-term. Chanda Kochhar, MD & CEO, ICICI Bank said this measure and the prevailing systemic liquidity conditions could lead to an increase in funding costs for banks, and in lending rates. Credit growth for the year was expected to be in the range of 18-20%, she said.

Lalit Kumar Jain, president, real estate industry body CREDAI, said this would have cascading effect on home loans and stifle growth since it will scare away the home buyers.