HDFC has followed suit with several other Indian banks, both state-owned and private, in raising its lending rates, raising the cost of its home loans and others. Several other banks had announced similar plans, including State Bank of India and ICICI Bank, citing increased costs and inflation as reasons for increasing the rates.
Many major Indian banks have now raised lending rates, and the Reserve Bank has increased interest rates, which will make for increased costs for consumers. However, the news is not necessarily all bad, as several analysts have pointed out, including the chairman of Punjab National Bank, who has cited the cyclical nature of interest rates as a reason not to be concerned with such developments. Interest rate cycles indicate that rates will drop in a few years, and long-term loans such as those on homes and automobiles will see an average rate similar to those of loans taken out several years ago, during a period of lower rates. The overall rate and cost will mean consumers in current economic climates will not necessarily be hit hard, unless for some reason the interest rates maintain their position, though many analysts claim this is unlikely.
Also, the interest rate can only increase the overall borrowing cost if prices maintain their position, and if the interest rate hikes are able to curb inflation, as was their intended goal, then the products and other loan-assisted purchases might be less likely to cost more for consumers than they would during a period of increased cost but low lending rates, depending on the individual numbers. So the increased rates that Indian consumers have witnessed are not necessarily going to impact adversely their financial situation as much as might immediately be assumed.
However, it is certainly not something to be taken lightly, and bank executives have advised consumers to speak with their bank advisors for details as to the best course of action on such purchases. Homes and other major investments need to be handled properly and any change in market conditions is likely to necessitate a detailed analysis of the circumstances in question.
What this means for the overall economy is likely positive; India has been experiencing unprecedented growth in recent years, and curbing inflation is a rather important step in reducing the likelihood of a major recession due to unchecked price increases and other difficulties. Increasing interest rates at the state level is likely to have this effect, and increasing lending rates among private banks will likely lead to somewhat slower, but likely more stable, growth. If handled properly the Indian economy is likely to continue its fortunate growth in the coming decades, depending on multiple other factors regarding state policy and consumer activity, the emergence of the middle class and foreign market conditions among the broader global economy.
In the meantime, investors should, as always, be careful with their money and make sure they are investing wisely, and this development from HDFC, as well as others, should be analyzed when making any sort of major purchase intended to be an investment of any significance.
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Read for details regarding HDFC Net Banking, as well as services from state owned SBI Online.
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