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RBI poops shoppers’ party
- Rate tweak heat on personal loans, credit card bills

Calcutta, Jan. 31: Planning to take a loan to buy that dream boat of a car' Or a personal loan for that picture-postcard holiday to kangaroo and kiwi country'

Sorry to spoil the fun — better pick up the calculator and redo your sums.

Taking a cue from the RBI that today raised a key rate as part of its monetary policy review, banks are expected to winch up interest rates on car and personal loans by half a percentage point.

The decision on the rate hike will take a few days, but it follows from the RBI move to increase its key short-term rate for lending to banks by 25 basis points to 7.5 per cent.

This tweak in the repo rate is also expected to make borrowing against securities costlier. With borrowing from the RBI becoming costlier for commercial banks, taking loans from these banks will become costlier for customers.

That is not all. The RBI today also raised a provisioning requirement for banks, which will now have to set aside Rs 2 — against Re 1 earlier — for every Rs 100 they lend to four customer categories. These categories are the real estate sector, credit cards, loans against shares and securities, and personal loans (excluding housing loans).

The provisioning requirement — the amount set aside to hedge risks at default — for housing loans above Rs 20 lakh has, however, been kept intact at 1 per cent. For loans below Rs 20 lakh, too, it stays at 0.4 per cent.

“The increase in the provisioning requirement for certain category of advances will force banks to rebalance their loan portfolios,” said S.C. Gupta, chairman and managing director, Punjab National Bank.

“These four categories of loans and advances will become less profitable for banks as they will now have to provide for more risk-adjusted capital against every rupee lent, which they could have deployed somewhere else.”

On raising rates on car and personal loans, Gupta said: “We are going to take a decision in 2-3 days.” Other banks are expected to follow the lead.

Already, Yes Bank has decided to hike its prime lending rate --- the benchmark rate at which a bank lends to its prime customers --- by half a percentage point from tomorrow. ICICI Bank, too, is taking a relook at its lending rates.

If banks raise their prime lending rates, home loan borrowers who had opted for floating rate loans will have to pay more. The benchmark rate is 11.58 per cent for public sector banks, 13.22 per cent for private sector banks and 12.72 per cent for foreign banks.

The increased provisioning requirement will also make using credit cards more costly. At present, most banks issuing credit cards charge a monthly interest rate of 2.95 per cent on the balance outstanding on the plastic.

“Although card issuers may not have to hike credit card interest rates because of an increase in the cost of funds, they may have to raise it following the higher provisioning requirement,” an HSBC Bank official said.

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