The Reserve Bank of India's decision to cut policy rates will bring cheer to the millions of home owners who were dealing with stubbornly-high equated monthly installments, or EMIs. The rate cut is also good news for prospective consumers who earlier postponed the purchase of a new house or automobile because of high rates.
"In my mind, there is no doubt that rates will come down... Banks are now offering home loans at base rate. They are not lending below base rate because they are not permitted to do so, but in a day or two, banks may reduce rates by at least 25 basis points," V Vaidyanathan, chairman and managing director of Capital First, told NDTV Profit. Capital First is a provider of financial services across consumer and wholesale businesses.
The Reserve Bank lowered its key policy rate for the first time in nine months, but more importantly the central bank has indicated that more cuts may be in the offing. The RBI also unexpectedly reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank, which will infuse an additional Rs 18,000 crore into the banking system. (Read: What RBI said in its monetary policy review today)
India's biggest lender State Bank of India may look at lending rate cuts soon, its MD & group executive A Krishna Kumar said. "A rate cut is likely. Rates on advances and deposits could come down simultaneously. The RBI's action is positive".
Indian Overseas Bank executive director A.K. Bansal said the RBI's action will result in moderation of interest rates in the coming days. Both lending and deposit rates are expected to see a downward revision which will improve growth prospects, he said.
According to Canara Bank executive director A.K. Gupta, the bank would consider interest rate cut in the light of RBI policy action.
Deposit rates to come down:
A reduction in interest rates on loans will be accompanied by a reduction in deposit rates in savings. So, deposit rates on savings bank account, fixed deposits, and other term deposits are likely to fall.
"There will be a reduction of 25 basis points across deposit rates," N Seshadri, executive director of Bank of India, told NDTV Profit.