With the inflationary trend in the economy persisting, more and more lenders are raising interest rates. The country’s largest home loan lenders, HDFC Ltd and ICICI Bank, joined the bandwagon on Monday, increasing interest rates on home loans by 0.50 to 0.75 percentage points.
This means all fresh borrowers and those existing customers who borrowed under the floating-rate option will now have to shell out more. This applies not only to home loans, but to all kinds of consumer loans, including car financing. Public sector banks like SBI, UBI and PNB increased the rate by half to one percentage point last week.
The rise may also affect the borrowers because the longer the duration of the loan, the more the impact of the rise in interest rate on your EMI.
Since home loans are normally taken for 20 years, rise in EMI is substantial. For every percentage point rise in interest rate, EMI on a 20-year loan goes up by Rs 68 per lakh. Normally, the size of the home loan in the present scenario is in the range of Rs 30 lakh to Rs 50 lakh. EMI on a Rs 50 lakh loan for 20 years will go up by Rs 3,402 per month. This means an additional annual burden of Rs 40,830.
A senior banker pointed out that the cumulative effect of interest rate hikes over the last three years means that for those who borrowed in 2005, the new EMI would be almost 28% higher than it was when they started repaying the loan. That means, EMI on a Rs 50 lakh loan has gone up by Rs 11,500 to Rs 53,322 after the latest hikes, which means the borrower will now fork out Rs 1,38,000 more per year than he did three years ago.
This is a major cause of concern not only for customers, but also for banks as they are now beginning to fear that rising EMIs might increase the default rate. If it happens, it won’t just be the bank’s profitability that will take a hit. You can be sure they will hike rates even further to cover for the higher risk of default.
But apprehensions of default as EMIs rise mean that banks and finance companies will first resort to increasing the repayment period while keeping the EMI unchanged. However, this may not be possible for many old customers, who have already had their repayment periods extended at the time of earlier hikes.
If the interest rate goes up by one percentage point, the repayment period increases by eight years if EMI is to be maintained at current levels. As the rate has gone up by three percentage points since 2005, most customers of that vintage may have reached the maximum possible repayment period already. In such cases, the increase in interest rates will perforce lead to rising EMIs.
For new customers, however, banks will try as far as possible to increase the repayment period, keeping their EMI unchanged, so that it would not stretch their repayment capacity immediately. Of course, this won’t be possible if the extended repayment period goes beyond the borrower’s super-annuation date.
In any case, whether through higher monthly payouts or a longer period of repayment, borrowers will have to meet the extra burden.
For those who have bought houses on borrowed funds, it’s a double whammy. On the one hand, high inflation at 11.42% is adding to their monthly bills. On the other, the rise in interest rates will push their EMIs substantially upwards.
Condemning the Maoist attack on the elite Greyhound force in Malkangiri district of Orissa, the Andhra Pradesh government on Monday vowed to intensify efforts to root out the Naxalite menace in the state. "We have taken this incident very seriously. We have to step up our efforts by 10 times to cleanse the state," Home Minister K Jana Reddy said here, after visiting the injured personnel of the anti-naxal force at a hospital here. The state government would give more sophisticated training to Greyhounds and focus on strengthening intelligence mechanism, he said. Expressing concern over the growing naxal activities along the state borders with Chattisgarh and Orissa, Reddy said the government would intensify combing operations to flush out the ultras in the two regions. He appealed to the Maoists to give up the path of violence and join the mainstream. About 35 personnel of Greyhounds, Andhra Pradesh's elite anti-naxal force, are feared drowned when Maoists rained bullets on a launch carrying the security personnel and sinking the vessel in the Balimela reservoir along the Andhra-Orissa border on Sunday. Meanwhile, state Director General of Police (DGP) S S P Yadav said here that massive search operations have been launched to trace the missing personnel. Six helicopters of Army, Navy and ONGC and divers have been pressed into service for the rescue operations in thick forests and in Balimela as well as Sileru reservoirs on the Andhra-Orissa border. A doctor attending on the injured cops said eight policemen were admitted to the hospital and all of them were out of danger.
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Heavy rains lashed Mumbai on Tuesday morning and caused flooding in several parts of the city and its suburbs. The rains have disrupted normal life with rail, road and air services getting badly affected.
According to the Regional Meteorological Department, Colaba in South Mumbai recorded a heavy rainfall of 200 mm while Santacruz (suburbs) recorded 142.9 mm.
Water logging up to one and a half feet was reported in Bandra, Sion, Chembur, Ghatkopar, Andheri and several low lying areas. Besides, landslides in the Mumbai-Pune expressway disrupted the vehicular traffic.
Rail services were badly affected with the Central Railway services coming to a complete halt due to water logging between Kurla and Vidyavihar suburbs. However, trains on the Western and Harbour lines are running late by 15 to 20 minutes, according to railway sources.
Traffic snarls were also reported across various junctions in the city with several low lying areas inundated by water, police said.
Flights from the international airports were delayed by an hour and a half, according to the Mumbai International Airport Website.
This is the second spell that the city has received this season.
Last year too, the city and its suburbs got paralysed due to incessant rains.
MS Dhoni's comments that players are getting tired due to the back to back matches has got a sympathiser in Test skipper Anil Kumble whop has backed Dhoni's comments. Kumble is of the opinion that it's dificult to play back to back ODI matches.
Reacting to the comments of Dhoni, Kumble said, "It's never easy to play back to back matches. I have done that in my carrer. It's not easy. It is tough and demanding ont he players." Meanwhile, BCCI vice president Rajiv Shukla had said that the Schedule of the Indian Premier League was more hectic and the players did not complain then.
The Indian One Day International captain complained that the team was tired of playing continuous cricket. MS Dhoni lashed out at the Asia Cup organisers and criticised the tournament schedule which is taking a toll on the players forcing them to play back to back matches.
But interestingly Dhoni never complained when playing continuous cricket for 45 days in the IPL. Dhoni's team played the maximum of 16 matches after they reached the final.
Dhoni was the highest earner too having logged in the highest bid at the IPL auctions.
The IPL would have been a more energy sapping one with continuous travelling and matches scheduled closely.
But now having just played six matches for India in the Bangladesh tri series and the ongoing Asia Cup, Dhoni is complaining of tiredness, reigniting the debate on whether the Indians are playing too much cricket.
Meanwhile, Sri Lanka Captain Mahela Jayawardene disagrees with Dhoni and has said that players need to keep themselves fit. Jayawardene said, "Pakistan has home advantage. They have also got some back to back games. But our team is fit enough. The players involve themselves in lot of efforts to keep themselves fit."
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