You will have to shell out a little more for home loans

New Delhi: The country’s top lenders, including State Bank of India, ICICI Bank and Punjab National Bank, on Thursday announced an increase in lending rates, a move that will make your home loans a little more expensive.

The hikes come amid tightening liquidity or cash supply in the banking system, accentuated by the year-end rush for funds that prompted SBI, the country’s largest lender, to raise deposit rates by up to 75 basis points.

On Thursday, SBI increased its marginal cost of lending rate (MCLR), which is linked to the interest rate on funds raised by a bank, by 20 basis points. Like SBI, ICICI Bank and PNB increased their MCLR starting March 1, but by a slightly lower magnitude of 15 basis points. Some lenders such as HDFC Bank will review rates next week. Finance minister Arun Jaitley, however, described it as a “one-off ” move.

Typically, while extending a home loan, banks keep a spread over the MCLR, which results in a higher interest rates on these loans. PNB said its home loans will cost 8.6% for most borrowers, while women will get it at 8.55%.

SBI has a spread of 40 basis points over the MCLR for most borrowers and 35 basis points for women borrowers (100 basis points equal a percentage point). ICICI Bank has so far not announced a change in the spread. While the government has been seeking a lower interest rate regime and has repeatedly prodded the Reserve Bank of India (RBI) to pare policy rates, the central bank has resisted a softer interest rate regime, arguing that there is a risk of higher inflation, given the recent rise in global crude prices as well as the impact of domestic measures such as higher allowances for government employees, following implementation of the Seventh Pay Commission recommendations. Besides, it has pointed to higher food prices to refrain from cutting policy rates.

With economic growth picking up, RBI may not move to that path now and last month the government’s chief economic adviser Arvind Subramanian had acknowledged that the scope to lower rates may have narrowed.