Clamour for Lower EMIs Grows as RBI Cuts Repo Rate
The clamour for reduction in interest rates on home and auto loans grew louder on Wednesday after the Reserve Bank cut repo rate for the second time in less than two months. Repo, the rate at which the RBI lends money to commercial banks, has been slashed by 25 basis points to 7.5 per cent, the RBI said.
Banks have been cutting deposit rates over the last six months, but very few lenders have passed on the benefits of the previous rate cut, announced on January 15, to consumers.
Base rate, which is the minimum rate at which banks lend to consumers, have remained unchanged for years. Analysts say lending rates need to quickly start falling so that demand for new homes and automobiles pick up.
"It is high time that banks should take a call and cut their base rate immediately," said SL Bansal, former chairman and managing director of state-run Oriental Bank of Commerce.
Reduction in interest rate will put more money in the hands of consumers and help revive demand in the economy. According to estimates, existing home loan consumers will be able to save Rs. 831 per month on a Rs. 50 lakh home loan (with tenure of 20 years) if the base rate is cut by 25 basis points.
MS Raghavan of IDBI Bank said, "It's a very simple arithmetic that the rate cycle has reversed. If not today, tomorrow (bank interest) rate has to come down."
However, Keki Mistry, Vice Chairman & CEO of HDFC - India's biggest mortgage lender - said RBI's rate cut will have a limited impact on the banks' overall balance sheet.
"When RBI cuts repo rate, the entire balance sheet of the bank does not get re-priced immediately,"
