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Home, personal and auto loan borrowers faced a sudden interest rate shock on Wednesday after the Reserve Bank of India announced an untimely hike in repo rates. The bankers ET spoke to are preparing to pass the hike on to their borrowers, marking the start of a nearly three-year cycle of rising borrowing costs.“With today’s increase in the repo rate, loans linked to the repo rate will be re-evaluated, as far as Kotak is concerned, our book is the largest in the repo rate followed by the MCLR, so for us to pass on the RBI rate hike is fair and reasonable,” said Uday Kotak, MD, Kotak Mahindra Bank. As RBI rates are integrated into deposit rates, you will see MCLR-based loans being re-priced.

Currently, interest rates are at historic lows with home loans starting at 6.5%, car loans starting at 7% and personal loans starting at 9%. Bankers say interest rates could rise by up to 200 basis points, if inflation continues to break through the regulator’s comfort band.

“We think the repo rate could be just over 6%, in which case we are seeing a 200 basis point rise over the next 12 to 14 months,” a banker said on the cover of anonymity. “We will need to be vigilant on interest rate sensitive sectors to ensure minimal credit slippages if interest rates rise disproportionately.”

Banks, in anticipation of an imminent rate hike, have already passed on rate hikes to borrowers. The State Bank of India, the largest lender, recently raised its marginal cost of lending rate by 10 basis points. A basis point is equal to one hundredth of a percentage point.

Bank of Baroda had increased the MCLR by five basis points across all durations while Kotak Mahindra Bank had increased its MCLR by five basis points across all durations. Banks and non-bank lenders have raised lending rates by up to 15 basis points over the past month due to tighter liquidity conditions and rising deposit costs.

“Looking ahead, given the hawkish rhetoric and the high likelihood of high inflation printing for April, the RBI will accelerate further hikes,” said Rahul Bajirao, chief India economist at Barclays. . “We expect the RBI to now offer a rate hike of at least 50 basis points at the June policy meeting. We see the RBI raising its key rates to 5.15% by August and we expect it to reassess macro momentum to gauge the need for further upside beyond that.