The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has cut interest rates by 25 basis points. The RBI Governor Shaktikanta Das in the second bi-monthly monetary policy statement for the fiscal year 2019-20 declared MPC’s decision to change the current neutral stance of monetary policy to the accommodative.
Home And Car Buyers Can Hope For Cheaper Loans
Indian economy is facing global uncertainty. At the same time, economic growth is also very slow. In the last two policy reviews, RBI had decreased its lending or repo-rate by 25 basis points from 6.5% to 6%. It is the rate at which the RBI lends money to the banks. Contrarily, the marginal average cost lending rate of bank has increased to 10.42% in April 2019 from 10.38% in January.
So now the repo rate stands at 5.75% which is good news for the home loan borrowers. Whenever the RBI cuts repo rate, money becomes available to the banks at much lesser cost so that they can lower the lending rates. So this decision by RBI is heartening for both the existing home loan takers and also for those who are about to take a home loan.
Wait And Watch Situation
However, it is a waiting period right now. It needs to be seen how banks transmit the same advantage to the borrowers. The banks are already under pressure for not transferring the benefits of the rate cut to the borrowers after RBI reduced the repo rate earlier.
The interest rates of home loan and the Marginal Cost of Funds based Lending Rate (MCLR) of the banks are directly linked. It is a reflection of the cost of funds of the bank. Although banks come out with their MCLR every month these monthly changes are not taken into account for home loans. The interest rate for home loans linked with MCLR is reset on year-basis after every 12 months.
That is why for a home loan borrower, the MCLR that is declared on year-basis is what matters. State Bank of India (SBI) is the largest lender in India. The bank reduced its MCLR by 5 basis points in May after which its MCLR has come down to 8.45% from 8.50%.
MCLR of Banks (May 2019)
Allahabad Bank: 8.60 percent
Andhra Bank: 8.75 percent
Bank of Baroda: 8.70 percent
Bank of India: 8.70 percent
Central Bank of India: 8.55 percent
Corporation Bank: 8.90 percent
Oriental Bank of Commerce: 8.75 percent
Punjab National Bank: 8.45 percent
State Bank of India: 8.45 percent
UCO Bank: 8.65 percent
Union Bank of India: 8.60 percent
Axis Bank: 8.80 percent
HDFC Bank: 8.70 percent
ICICI Bank: 8.75 percent
IndusInd Bank: 9.85 percent
Karnataka Bank: 9.40 percent
It is the right time for new home loan borrowers to explore various home loan options with the banks of their choice. Experts advise the borrowers to get details of the actual home loan interest rate instead of only the MCLR of the bank. The banks will charge a Mark-Up on the MCLR prior to giving loan.
Repo rate cut by @RBI will boost India's economy by making loans affordable to MSMEs, exporters & home buyers. Removal of charges on NEFT & RTGS transactions will bring great relief to the people and will help achieve PM @NarendraModi ji's vision of Digital India. #RBIPolicy
— Piyush Goyal (@PiyushGoyal) June 6, 2019
RBI cuts repo rate by 25 bps to 5.75% with immediate effect. Will your monthly EMIs come down? @TimesNowHindi @TimesNow Birendra Chaudhary
in conversation with @HeenaGambhir on #RBICutsRate.https://t.co/tIA6Gd2Pug
— Birendra Chaudhary (@bkchaudhary) June 6, 2019
Waiver For NEFT And RTGS
The RBI also announced waiver for the charges for National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) transaction for all users. The RBI said that banks will have to pass on this benefit to their customers.
Last month, the RBI extended fund transfer timings through RTGS by 1 and a half hours up to 6 pm from June 1. Prior to that, RTGS transaction was allowed until 4.30 pm. The inter-bank transactions final cut-off will be 7:45 pm.