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Hike in repo rate to hit home loan borrowers

Hyderabad: The decision of Reserve Bank of India to increase the repo rate will impact the existing home loan borrowers as the rate of interest is bound to increase by 0.5 per cent to 1 per cent.

The RBI has increased its Repo rate by 40 basis points to 4.40 per cent on May 4, According to the financial experts, the banks would pass on this burden on to the consumers. According to a senior bank official, repo rate is the rate of interest collected by RBI from the banks in the country when these banks borrow money. When the banks bring money from RBI, they will have to shell out extra money and certainly these banks would transfer interest component on the consumers.

The Agrasen Bank Vice-Chairman Naveen Kumar Agarwal said that as there is increase in the Repo, the Commercial Banks have to pay more interest to Reserve Bank of India and in-turn they will also enhance the rate of interest on their leadings. Thus, there will be an impact on common man who borrow money from Commercial Banks due to increase in repo rate by Reserve Bank of India.

EMI will be increased for floating rate on interest loans, said Naveen Kumar Agarwal. When asked about the impact on fixed deposits, Naveen Kumar Agarwal said that the RBI has not changed its Reverse Repo rate as such there will not any impact on the rate of interest on Fixed Deposits.

Reverse Repo rate means whenever the Commercial Banks have surplus money they will make deposit with Reserve Bank of India on certain rate of interest which is known as Reverse Repo Rate.

The experts said that the Repo-rates are mainly increased to control inflation as Loans will become costlier and the purchase power of the common man will be decreased resulting in less money in the hands of the common man and decreasing the demand of the commodity. Another banker said that at present the Inflation index has touched its highest peak in last 17 months.

In 2018 the inflation rate was 3.95 per cent whereas in March 2022 inflation rate touched 6.95 per cent which is to be considered as a very high. Demand and supply will play a major role in inflation. Presently, the interest rate ranges from 6.6 per cent to 7.9 per cent depending on the credit ratings of the borrower.

A techie Rajeev Jopat, who took a loan of Rs 30 lakh from LIC Housing Finance said that the authorities have informed that the interest would increase. “The bank personnel have alerted me about the increase in interest and have told that they would inform me in a couple of days on the exact quantum of interest,” he told.

Rajeev said that the tenure of the loan payment would increase based on the income of the loanee. If the loanee can repay in higher amounts, then the interest rate may go down as the number of EMIs would be reduced. But otherwise the borrowers will have to pay higher interest making housing.