SBI hikes deposit rates by up to 1%, home loan EMIs to go up

Country's largest lender State Bank of India on Thursday hiked deposit rates by upto 100 basis points. The bank also hiked base rate by 25 basis points to 9.50 per cent from July 11.

With the hike in the lending rates, home, auto and commercial loans will become expensive.

As many as a dozen banks, including private sector leader ICICI Bank have already hiked their lending rate by 25 basis points in response to the tightening of monetary policy by the Reserve Bank last month.

The RBI hiked key short-term lending and borrowing rates by 25 basis points (0.25 per cent) each with immediate effect to tackle inflation. The short-term lending (repo) rate rose to 7.5 per cent and the borrowing (reverse repo) rate at 6.5 per cent.

Last week, besides ICICI Bank, other public sector lender Canara Bank , Indian Overseas Bank, Corporation Bank and Dena Bank also hiked their base rate by 25 basis points each.

Since the introduction of the base rate system on July 1, 2010, the rate below which a bank cannot lend to anyone, leading banks have increased their base rates on an average of 200 bps.

South-based Dhanlaxmi Bank also hiked its minimum rate of lending or the base rate by 25 basis points to 10.25 per cent.

Loans under the older Benchmark Prime Lending Rate (BPLR) regime, which preceded the present base rate, also got dearer as the bank hiked the BPLR by 25 basis points to 19.25 per cent, it said in a release.

"The hike in our base rate and BLPR reflects tight monetary conditions and is in line with market trends," the bank's Chief Financial Officer Bipin Kabra said.
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Homeownership may be for the few, not the many

Homeownership has long been associated with investment savvy.
Tax breaks, equity growth and the sanctity of the American dream — the real estate community has made a pretty compelling case over the years for the merits of purchasing property versus throwing your money away on rent.

But as the housing market redefines itself in the wake of the subprime mortgage crisis and the ensuing industry recession, a number of economists who follow the industry suggest the benefit of buying no longer applies. Others say it never did.

Yale economist Robert Shiller, whose book "Irrational Exuberance" accurately predicted the stock market collapse in 2000, notes that U.S. housing prices posted roughly a zero percent gain between 1890 and 1990, after adjusting for inflation.

"That's the remarkable thing that most people don't realize," he says. "This is not a financial investment. It's an investment that provides you services and you have to answer for yourself how you value that."

The biggest dividend of real estate, says Shiller, is the lifestyle it affords. Some are willing to pay a premium for kid-friendly neighborhoods, quiet streets, a historic home or a condo close to work.

But taking the plunge today is a bigger financial gamble than it once was.

"If you're doing it more with investment motives, then I think you have to be careful," says Shiller, who co-founded the Standard & Poor's Case-Shiller Index for housing prices. "I wouldn't be overly influenced by the idea that home prices are low, and they might suddenly take off — that's what's coloring some people's thinking now. It might be more accurate to wait another five years."

Or not at all.

Research by Jack Francis, a former Federal Reserve economist and professor at Baruch College at the City University of New York, reveals that residential real estate has consistently failed to measure up with other asset classes over the last 30 years.
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