The Reserve Bank of India (RBI) has raised key policy rates by 12 consecutive times since March 2010. To be in-line with the RBI, banks have also increased its interest rates number of times along with re-launching teaser loan schemes.
Crisil, in its research report said, rising interest rates and resetting teaser loan schemes by various banks would result into an increase of burden by Rs 6000 crore on home loan borrowers. The amount would increase in the form of higher Equated Monthly Installments (EMIs).
The report also mentioned rise of borrowing cost by 15% on floating rate home loans.
“Floating interest rates for home loan borrowers increased by around 250 basis points (bps) since April 2010, due to a continuous increase in key policy rates, but has remained stable for those who borrowed under teaser loan scheme, where rates are fixed for initial 2.3 years.”
Of the entire home loan portfolio, 40% of borrowers chose to pay more EMIs, 60% preferred an increase in the tenure of their loan.
The borrowers who opted for teaser loans may have to bear high burden after first quarter of 2012 as interest rates are expected to adjust.
Teaser loan accounts for about 25% of the housing loan portfolio of Rs 5,10,000 crore. “Once interest rates are reset to prevailing market rates (from April 2012), we estimate an additional EMI burden of Rs 2,000-2,500 crore annually on this account,” Crisil said.
Rise in interest rates on the other side also increases the chances of deteriorating asset quality of the banks due to increase in chances of default in interest and principal payments.
“The Non-Performing Assets (NPAs) of financiers are expected to increase by 30 bps by March 2013 on account of the steep rise in the interest outgo for borrowers coupled with the economic slowdown,” Crisil added.