If you plan to avail of a home or an auto loan, better clinch it sooner than later. Within a month, financial analysts say, retail loan rates are expected to harden by 0.25-0.50 per cent.

There are two reasons for the rise in rates, which are currently at historic lows. The first is that the Reserve Bank of India has signalled that the rate cycle has changed when it raised the short-term repo rate on October 26 after a span of four years.

Second, on that mid-term Annual Statement day, the RBI told banks to comply with higher risk-weight norms for almost all types of retail loans, fearing that an asset bubble was being created. Thus banks now have to apportion more capital each time they disburse a retail loan, be it a home loan, an auto loan, a personal loan or even a credit card.

To be able to do so, they will have to reduce their debt losses, reduce their operating costs and manage capital more efficiently. It would also mean that banks will have to charge more and lend selectively.

While some banks are expected to hike the rate on home and auto loans by 0.25-0.50 per cent soon, others may follow suit within a month or two.

V Vaidyanathan, senior general manager-retail, ICICI Bank, the biggest retail player in the market, said, "Retail loan rates of most banks are headed upwards. Home and auto loan rates too will go up soon." The first players to jack up rates will be those offering the lowest rates today.

"The car loan market has become extremely competitive and some players are lending at ridiculously low rates. They will not be able to sustain such levels given the rate hike and new risk weight norms," said Murali M Natrajan, head mortgage & auto loans, Standard Chartered Bank.

In personal loans (now going at 13-22 per cent) and credit cards (currently charging 1.49-3 per cent a month) the rates are sufficiently high to take care of the increased risk weight norms and, therefore, an immediate hike is ruled out.

The RBI in its mid-term annual policy statement for 2004-05 increased the risk weight for lending to housing to 75 per cent from 50 per cent and on consumer credit including personal loans and credit cards to 125 per cent from 100 per cent. Bankers expect the 125 per cent risk weight to apply to car loans too.

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