Loan demand not affected by rate hikes for now, say bankers

Though the impact of rising interest rates is being watched closely by borrowers, especially in mortgages, bankers say demand has not been impacted for now, and note that rates are still below pre-pandemic levels.

“Bank credit has grown at 11 per cent, a large part of it led by retail borrowers. In segments such as home loans or loans for essential items such as a refrigerators, interest rates won’t come into play as these are items that are needed. The only thing that could get impacted is discretionary spends,” said Shanti Ekambaram, Group President - Consumer Banking, Kotak Mahindra Bank. Small and medium enterprises also require working capital, she noted.

As of now, interest rates have not impacted demand, she said, adding that the longer term impact remains to be seen.  

Kotak Mahindra Bank expects advances growth in the first quarter of the fiscal to be in the same range as that in the fourth quarter of last fiscal, at about 21 per cent year-on-year growth.

With the Reserve Bank of India increasing the repo rate by 90 basis points in the last two policy announcements,banks have also hiked lending rates through the external benchmark lending rate and the marginal cost of funds-based lending rate. The RBI is expected to hike rates further in the coming months depending on the trajectory of inflation.

“Even with two to three cycles of rate increases by banks and NBFCs, lending rates remain below pre-pandemic levels,” said an executive with a housing finance company.

Quicker transmission of rate hikes

Another banker pointed out that for the first time during a rate hike cycle, a number of loans are linked to external benchmarks. ”Let’s see how that plays out. The expectation is that the transmission will be much faster,” he said, adding that people may choose to cut down on discretionary spends as EMIs rise.

According to RBI data, non-food bank credit registered a growth of 11.3 per cent in April 2022, as compared with 4.7 per cent a year ago.

Anuj Puri, Chairman, ANAROCK, had said after the Monetary Policy announcement on June 8 that the rate hike would push up home loan interest rates, which had already begun creeping up after the surprise monetary policy announcement last month.

“Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12 per cent and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments,” he had said.

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