Cheaper Home Loans Coming Soon

Good news for home loan borrowers. Those who are planning for buying a home loan should wait a little longer to take the interest rate benefit. A reduction is expected in the auto loan, housing loan and other corporate loan rates; the Reserve Bank of India yesterday announced a slash in its benchmark policy rates or Repo rates by 25 basis points, lowering it down to 7.5 %.

The cash reserve ratio (CRR) is same as before is 4 per cent. The Repo rate is defined as the interest rate at which RBI lend funds to the different Indian banks. If RBI reduces the Repo rate, it directs the banks to lower rates for customers on all product loans. So a change is expected.

The Governor of Reserve Bank, had slashed the lending rate for short term by 0.25 % to 7.50 %, making the second cut this year.

The central bank has kept in mind a rigid monetary policy maintaining sticky inflation, but the latest ease of stand has been encouraged by the announcement in softening and growth of inflation.

The banks are not going to pass the benefit of RBI’s cut in Repo rate during this month. So it is best for home loan borrowers to wait a little more time until the banks announce the cut in Home Loan Interest rates or other product rates. The Managing Director and Chairman of Bank of Baroda, Mr. S S Mudra, announced yesterday, "There is a few chance to believe that reduction will happen at a measured speed. We are expecting ease of deposit rates as we enter new financial year, and this happens the transmission will take place".

However, consumers need not be depressed because the rate cut will be offered, but the change will not be immediate. Borrowers can expect the interest rate slash in the coming month. The Chairman and Managing Director of Andhra Bank, Mr. B A Prabhakar added, "As the deposit growth has been muted, deposit interest rates to have remained same. Therefore, it is expected the monetary transmission to take place only after two to three months".

 When the different banks reduce the rates for different products like auto loans, home loans, other corporate loans, the equated monthly installments would be low or the tenure would be shortened. This effort of RBI will reduce the burden of loans. It is a relief for all loan borrowers who need loans in the coming quarters.