A week after the RBI increased key short term rates, home loan major HDFC hiked lending rates by 50 basis points. A host of PSU banks have also hiked rates, SBI by 25 basis points. CNBC-TV18 reports that at the end of the day, PSU banks still have a 0.5% rate advantage.

Your dream home just got more expensive as home loan major HDFC raised interest rates by half a pecent and big daddy State Bank of India by a quarter percent. This is the third increase in the year by HDFC, but the company doesn't see rates going up too much from here on.

Executive Director, HDFC, Renu Karnad says, "Essentially, I don't think they should increase it, maybe a small increase somewhere. But I don't think, we should see an increase, at least in the very near and medium term future."

Market leader ICICI may not hike rates this time around, as they have already hiked rates earlier in June. The banks says that it is watching its borrowing costs.

Deputy MD, ICICI Bank, Chanda Kochhar says, "If we see the cost of funds going up, then our costs go up and then we hike lending rates. As of now, we are watching and we haven't taken any decision so far"

Even though ICICI Bank and HDFC command a big market share in the home loan space, PSU banks still have an interest rate edge and the competition is also set to get hotter.

While HDFC and ICICI Bank offer floating rate home loans at 9.5%, banks like SBI and Bank of Baroda offer rates between 8.75 to 9%.

This is the first time in the past five years, that PSU bank's interest rates are nearly 0.5% cheaper than their private counterparts. Bankers are not willing to rule out any more price hikes, which may mean higher EMIs.