Middle class bears brunt of rise in EMIs

HYDERABAD: The middle class heaved a sigh of relief as the Monetary Policy Committee (MPC) of Reserve Bank of India on Thursday left the repo rate — the interest rate at which it lends money to banks — unchanged, but they still have a hefty interest on their loans.

The salaried people were worried about a possible increase in their EMIs as economists had predicted another hike in the repo rate.

The MPC has been hiking the repo rate since last May to fight inflation, which resulted in the rate rising from a historic low of four per cent in May 2022 to 6.50 per cent in February 2023.

A 2.5 per cent rise in repo rate, which translates into a 62-percentage point rise in interest rate from May 2022, has skyrocketed interest rates for home, auto and personal loans, wreaking havoc in people’s meticulously-planned monthly budgets.

The phenomenal increase in home loan rates is especially taking a toll on those, who availed the facility at low interest rates during Covid times.

A city-based IT professional Vignan Madishetti, sharing his plight with Deccan Chronicle, said, “I took a 15-year home loan of Rs 20 lakh from Punjab National Bank in 2017 at an interest rate of 8.7 per cent. After the RBI rate hikes, my interest rate went up to 11 per cent. I transferred my loan to HDFC Bank for a lower interest rate but for a period of 21 years. I wanted to prepay the loan to ease the burden but the tenure kept getting extended.”

About a year and half back, Kalyan Majeti, who is a software engineer in a UK-based bank, took a home loan of Rs 48 lakh from State Bank of India at an interest rate of 6.9 per cent for 20-year tenure to buy a flat. Eventually, the interest rate surged to 9.3 per cent. What was Rs 22,000 EMI when he took the loan has now shot up to Rs 31,000. “It is tough to foot an increase of Rs 11,000 in EMI,” he averred.

Ravi Korukonda, who works as a manager in an IT firm, said, “I had borrowed Rs 2 crore from Axis Bank to buy a villa in 2019 at an interest rate of seven per cent for a tenure of 20 years. Now I am paying nine per cent interest on the loan, which translates to a 30-year loan repayment period. It means that I will be paying the loan amount even when I am 70 years old. It looks like the loans will outlive us and our children will end up paying the remainder.”

P. Naresh Babu, a chartered accountant, has a similar story. He sees no end to the rising EMIs, which are eating into the incomes of middle class people.