It is expected after the Reserve Bank of India decision to cut key rates will again bring down the interest rates on loans for homes, cars and other kinds of consumer finance. The interest rates are expected to come down by another 0.5 percentage point following.
As per the sources of RBI the repo rate, the rate at which it lends short-term funds to banks, and the reverse repo rate — which it gives on funds parked by banks with the central bank — would be cut by 0.5 percentage point with immediate effect. After the reduction the new repo rate will be 5% and the reverse repo rate 3.5%.
Banks, till now have been aggressively cutting down rates have indicated that after the announcement they would pass on the RBI’s cuts to customers in the form of fresh reduction of interest rates. Moreover they will also be cutting down the interest rates on deposits by a corresponding amount.
UCO Bank chairman and managing director S K Goel stated, ‘‘Banks will soon decide to cut rates, which should help in reviving the economy’’. A senior official of ICICI Bank supported this view.
In the past, banks have occasionally cut rates for new borrowers without changing the rate paid by existing ones. But this time, banks are going to offer benefits to the old customers on floating rates. This will be possible as banks will perhaps cut their prime lending rates (PLR), to which the floating rate is benchmarked.
Currently home loan rates are around 10% for most public sector banks, and the private sector banks are maintaining rates of 11-12%.
SBI has emerged as the most hostile player by announcing a special scheme under which new home loan borrowers are being offered an 8% rate. Most likely after Wednesday’s announcement, other banks might use the opportunity to come closer to the SBI rate.
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