Since last year, interest rates have increased dramatically in the nation, despite the RBI raising the repo rate by 250 basis points in six straight increases. Once the RBI’s temporary relaxation expires, interest rates will now start to increase once again. In October 2020, the RBI rationalized the risk weighting by making it zero for loans with a loan-to-value (LTV) of more than Rs 75 lakh. Also, it was lowered to 35% for LTVs under 80%. The relaxation was first scheduled to take effect until March 2022 and then extended until March 2023, which is already past.
As the pandemic eliminated the LTV restriction at 75% for loans exceeding Rs 75 lakh, borrowers of house loans would now need to pay a 25% advance margin in order to get a loan over Rs 75 lakh.
More than a third, or Rs 2.45 lakh crore, of the individual house loan disbursements made by banks and housing finance companies during 2021–22 were more than Rs 50 lakh, according to statistics from the National Housing Bank (NHB).
Recently, numerous banks boosted their lending rates, including SBI, ICICI Bank, and HDFC Bank. In order to combat inflation, the RBI increased the repo rate by 250 basis points in six straight rate increases starting in May 2022.
Raised Deposit Rates
Together with loans, the country’s deposit rates have increased. Small savings accounts and bank FDs are now in a competitive market with interest rates of roughly 7%.
After three consecutive hikes in interest rates on modest savings programs, post office term deposits, which had previously offered lower returns than bank FDs, have once again been competitive. The yield on two-year post office term deposits under the modest savings plans is 6.9%, which is the same as what most banks provide on deposits with a comparable tenure.
The transmission to retail deposit rates picked up speed in the second half (H2) of the previous fiscal after remaining subdued in the first half (April-September; H1) due to banks’ increased efforts to attract retail deposits to support strong credit growth, according to a central bank analysis. This followed a series of repo rate increases by the RBI since May 2022.
From May 2022 and February 2023, the Weighted Average Domestic Term Deposit Rate (WADTDR) on new bank deposits (including retail and bulk deposits) rose by 222 basis points (bps). Banks had concentrated on mobilizing bulk deposits throughout H1. According to the RBI, this trend was reversed in H2 when the rise in new retail deposit rates (122 bps) outpaced the increase in new bulk deposit rates (77 bps).
