India's top commercial bank, State Bank of India (SBI), hiked its fixed rates for home loans on Monday in what analysts saw as an indication other interest rates in Asia's fourth-largest economy are headed higher.
Bankers say borrowers have shown an increasing preference for fixed-rate loans in recent months, reflecting expectations that official interest rates will rise off three-decade lows due to higher inflation and increasing rates around the world.
The finance minister said on Saturday he saw no rate rise in the near term, but the central bank said in its annual report on Monday that rising global rates could impact domestic rates.
SBI said it was hiking rates by 25 basis points to 8 percent for fixed-rate loans up to 5 years and by 50 basis points to 8.75 percent for loans above 5 years and up to 15 years. Loans from 15 years to 20 years would now be charged at 9 percent, against 8.5 percent earlier.
Floating-rate loans were unchanged, however. A bank statement said borrowers under the floating-rate scheme wishing to lock into fixed rates could do so by paying a one-time fee of 2.75 percent on the amount outstanding.
India's top mortgage lender, Housing Development Finance Corporation Ltd (HDFC), increased interest rates on its fixed-rate loans earlier this month.
"Both have hiked rates only on the fixed-rate loans," said Dipankar Choudhury, analyst at ICICI Securities.
"While this is one indication that interest rates are headed higher, it could also just be a move to discourage borrowers from locking into fixed-rate loans," he added.
SBI Chairman A.K. Purwar told reporters later that he expected interest rates to be stable in the short term but the medium-term outlook was not clear.
ICICI Bank Ltd, India's second-largest commercial bank and the biggest mortgage lender last fiscal year, said it was not hiking its mortgage rates for now.
"We price our products on the basis of our cost of funds and that has not changed. So we are not changing (mortgage) rates for now," said V. Vaidyanathan, the bank's senior general manager in charge of retail products.
While India's central bank has not changed its benchmark bank rate from a three-decade low of 6 percent, yields on government and corporate bonds have risen sharply this year.
The 10-year benchmark government bond yield is up some 95 basis points since January 1, while the five-year corporate benchmark yield has risen more than 100 basis points in the same period.
SBI shares ended 2.6 percent higher at 445.3 rupees on the Mumbai Stock Exchange, slightly higher than before the rates announcement, and outperforming a 1.4 percent rise in the exchange's benchmark index.
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