rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Banks admit they will pass on cost to customers

Banks admit they will pass on cost to customers

Last updated on: May 4, 2011 12:23 IST

Banks admit they will pass on cost to customers

     Next

Next
Dipta Joshi in Mumbai

You will soon be paying a higher rate of interest on your loans.

The Reserve Bank of India's annual credit policy has increased the repo rate by 50 basis points, which will mean higher cost of borrowing for banks.

And, the brass at banks such as HDFC, ICICI and State Bank of India have already made it clear that a large part of this raise will be passed on to customers.

While HDFC Bank and ICICI Bank said interest rates were bound to go up by 50-100 bps, SBI said the rise could be between 25-50 bps.

New loans are bound to get expensive. Among these, auto and home loans, the biggest components of a bank's loan portfolio, would be impacted the most.

Click NEXT to read more...


Image: New loans are bound to get expensive.
Photographs: Reuters
     Next

Banks admit they will pass on cost to customers

Prev     Next
Prev

Next
Fixed interest rate auto loans will remain the same, but those with a variable interest rate will see a rise in their equated monthly instalments.

For existing home loan borrowers, irrespective of whether your loan is linked to the bank's base rate or its prime lending rate, you will have to bear a rise in your EMI.

So, if at a nine per cent rate of interest you were paying Rs. 900 per Rs. 1 lakh for a Rs 30-lakh loan whose tenure is 20 years, a rise of 50 bps (at 9.5 per cent) will imply paying Rs. 932 a lakh for the same loan.

Most banks, however, offer to extend the tenure rather than EMI.

Click NEXT to read more...


Image: Fixed interest rate auto loans will remain the same.
Photographs: Reuters
Prev     Next

Banks admit they will pass on cost to customers

Prev     Next
Prev

Next
New home loan borrowers might have the option of negotiating and choosing between banks charging lower interest rates.

In its policy, RBI has indicated a future increase of rates, too.

Typically, such sharp pointers from the central bank would lead to banks increasing their lending and deposit rates.

However, according to bankers, this time around, the impact will be more on the lending side rather than the deposit side.

According to Shyamal Saxena, general manager-retail banking products, Standard Chartered: "It would only be the odd bank that raises its rate on term deposits now, since the liquidity crunch faced by the banking sector in December and March already saw banks increasing deposit rates to attract customers.

Click NEXT to read more...


Image: RBI has indicated a future increase of rates.

Prev     Next

Banks admit they will pass on cost to customers

Prev     Next
Prev

Next
"However, lending rates were not raised the last time around and will be raised now."

Most banks are already offering 9.5-10 per cent interest on one-year term deposits.

According to Rajat Monga, group president, financial markets, YES Bank, if at all banks increase rates; it would be for the short-term deposits of three-six months.

"The very short-term deposits need to correspond to RBI rate movements and, so, there could be a 25-50 bps increase in these," he says.

Besides, the 50 bps increase in the savings bank account, as mandated by RBI in its annual policy, is already an increase that customers will enjoy.

Click NEXT to read more...


Image: Banks are offering 9.5-10 per cent interest on one-year term deposits.

Prev     Next

Banks admit they will pass on cost to customers

Prev     Next
Prev

Next
So, starting today, you will earn four per cent annually, instead of 3.5 per cent on the balance in your savings bank account.

Deregulation of interest on savings bank accounts has been on the anvil for some time now, and the increase seems to be a step in that direction.

Like short-term bank deposits, debt funds such as liquid, liquid-plus or ultra short-term schemes that have a lower maturity are also expected to benefit from the rate rise.

Also, with RBI intent on taming the high inflation rate, managers expect further rate increase that would benefit these schemes.

Click NEXT to read more...


Image: Short-term bank deposits will benefit.

Prev     Next

Banks admit they will pass on cost to customers

Prev     More
Prev

More
"Those who have invested in ultra short- and short-term debt funds can expect higher returns with RBI increasing the rate by 50 bps, as now the cost of borrowing will go up and yields will harden more", says Srikanth Subramanian, research analyst at MorningStar.

The short term will also provide flexibility to investors who can shift schemes, if there is a change in the interest rate cycle. Short-term debt funds will give better returns because of the constant churn that fund managers have to do.

However, the constant churn will attract short-term capital gains tax. The capital gains will be added to your income and taxed, according to the income tax slab.


Image: Short-term debt funds will give better returns.

Prev     More
Source: