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Last Updated : Aug 07, 2019 03:44 PM IST | Source: Moneycontrol.com

Will banks pass on lower rates to borrowers?

Many experts say RBI has to ensure that the banks transmit lower rates to customers.

Hiral Thanawala @thanawala_hiral

The Reserve Bank of India (RBI) slashed interest rates (repo) by 35 basis points (bps) on Wednesday. The repo rate now stands at 5.4 per cent, after four consecutive rate cuts in this year from its recent peak of 6.5 per cent.

Dr Ranjan Chakravarty-Product Strategy, Metropolitan Stock Exchange says, “The monetary policy committee has delivered a properly calibrated rate cut. A 35 bps cut is exactly appropriate. A 25 bps cut would have been too soft and 50 bps wasteful given the strong performance of the monsoon since the previous policy announcement.”

Impact on home loan rates

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Falling interest rates are expected to benefit home loan borrowers. Please refer to the table below. However, the real impact could be different. According to CARE Ratings, a 75 bps repo rate cut by the RBI since February 2019 has led to only a 15 bps reduction in marginal cost of funds based lending rate (MCLR).

Today, State Bank of India has announced the reduction in its MCLR by 15 bps across all tenors. The one year MCLR would come down to 8.25% p.a from 8.40% p.a. with effect from 10th Aug 2019. Many experts say RBI has to ensure that the banks transmit lower rates to customers. Ravindra Sudhalkar, ED and CEO, Reliance Home Finance says, “For the consumers to feel the benefit of lower rates, the RBI will now need to step in for accelerating the transmission of the rate cut.”

Further rate cuts expected

According to key industry stakeholders, this is a progressive RBI policy and should help improve the liquidity, consumption and demand scenarios in the economy, albeit with a lag. Rajiv Singh, CEO, Karvy Stock Broking says, “We continue to expect further cuts from the RBI, as based on the current inflation projections, there is further room for the RBI to cut rates and boost the economy.”



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First Published on Aug 7, 2019 01:57 pm
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