Housing loan customers may have to repay part of their borrowings or suffer very high EMIs, as there is a scurry among banks to avoid bad debts following successive interest rate hikes in the last six months.
Private sector lenders like ICICI Bank [Get Quote] and HDFC [Get Quote], who were very aggressive in the home loan market in the low interest rate regime two years ago, are banking on tools such as part repayment of loan or increased EMIs so that borrowers meet their liabilities before they retire, an analyst said.
"So far, we are not affected by this syndrome. In case of public sector banks the rise in home loan rate is not as steep as in the private sector," Punjab National Bank [Get Quote] chief general manager U S Bhargava said.
The bank has managed to absorb the effect by increasing the tenure, which in most of the cases are limited to the active service age.
However, those in their late 30s or 40s will face pressure to repay part of the loan in advance.
Private sector banks, wherein the rise is as high as up to 4 per cent in the last two years, are finding it difficult to manage it and in some cases have resorted to asking debtors for prepayment of some part of the loan or agreed to increased EMIs, a senior official with a private bank said.
State Bank of India [Get Quote] has already decided it will hike equated monthly instalments, and is even bracing for an increase in bad debts.
Generally borrowers take loan for 15-20 years. A further increase in the tenure will mean that borrowers in their late thirties would have to pay monthly instalments for a few years beyond the retirement age.
The move to increase EMI or repay a part of the loan will help borrowers to repay the entire amount before the retirement age, the private sector banker said.
Home loan rates started moving northward sharply since October last year as RBI raised short-term lending rates and cash reserve ratio a number of times to check demand and ease inflation.
Country's largest private lender ICICI Bank has raised floating home loan rates by 2.5 per cent and HDFC by 1.75 per cent. As a result, the tenure of the loan has increased substantially.
According to State Bank of India managing director Yogesh Agarwal, EMIs on its home loans could be increased shortly as interest rates have gone up by 2 per cent in the last one year.
"So far, we have resisted doing so but we will do so now," he said.
Agarwal, however, feared this may marginally push up banks non-performing assets on home loans as it may impinge upon the capacity of the borrowers to repay.
Currently, NPA in home loan segment is around 2.5 per cent and further rate hike could worsen the NPA levels.
Given the current inflation level of 4.03 per cent, increase in the interest rate is a very unlikely measure expected from RBI, which will announce the first quarterly review of monetary policy on July 31.
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