Home Loans, Auto Loans, Personal Loans May get Cheaper With RBI Interest Rate Cut

Business

oi-Sunil

By Sunil Fernandes

Updated: Wednesday, March 4, 2015, 9:26 [IST]

The Reserve Bank of India's (RBI) surprise decision to cut interest rates outside of the Monetary policy for the second time in a row could make home, auto and personal loans cheaper.

The RBI has already cut interest rates (repo rates) by 50 basis points this year, which should enable banks to pass on these cuts by way of interest rate cuts on the various loans they offer to individuals.

Repo rates are rates at which the RBI lends money to banks and any drop in these rates leads to a fall in domestic deposit rates and lending rates. There is no compulsion on the parts of banks to reduce interest rates, though a 50 basis points cut in the last few months by the RBI, should translate into substantial gains for banks, who would cut interest rates.

The other reason to be optimistic of a drop in home loans, auto loans, personal loans is the fact that credit off take has not been the best. What this means that banks maybe prompted to lower interest rates to boost credit off take.

This is one reason the RBI did not cut the CRR because there is ample liquidity in the system in view of the facts that credit off take is still not the best.

Banks may likely meet in the next few weeks to see their own credit offate before deciding on the possibility of passing on any cuts in interest rates.

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