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No respite for home purchasers in New Year. After the real estate prices sky rocketted in 2010, home loans are becoming costlier. Most banks raised the interest rates in the last two months of 2010. On 31st Dec, 2010, SBI and ICICI Bank announced a hike in lending rates for existing as well as new customers. HDFC Bank and Kotak Mahindra Bank limited the increase to new customers.

For ICICI Bank customers, who took loans before July 2010, the benchmark prime lending rate will go up by 25 basis points from Monday. So, for a home loan of Rs 40 lakh, with a tenure of 20 years, EMI will increase by Rs 1,000. The latest round of hike for loans taken before July is in addition to the 50-basis point increase announced in the first week of December. The combined effect will be a 75-basis point rise. As a result, for a Rs 40 lakh loan, the monthly burden has gone up by around Rs 3,000 in a span of around 30 days. For new loans, there is a 50-basis point hike with the base rate rising to 8.25%.

For SBI's new customers, the base rate will rise by 40 basis points to 8% from 7.6% at present. Those borrowers, who were on the BPLR system, will see the burden rise by 25 basis points as the benchmark has been increased from 12.50% to 12.75%.

Over the next few days, most banks are expected to increase their base rates, making new loans more expensive and in some cases, deposit rates are also likely to rise.

This is good news for fixed income investors. SBI announced a fresh increase of 50-100 basis points in its deposit rates for some maturity buckets. Earlier in December, SBI had increased deposit rates by up to 125 basis points. Following this, the peak rate of 9% is now available on deposits with maturity of 555 days as well as those maturing in 1,000 days. It is for the first time since the global financial crisis in 2008 that a bank is offering 9% on fixed deposits.

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