Home Loan Rate Cut On The Way
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Home Loan Rate Cut On The Way

Associate editor at Dialabank.com
The wait for your easy and decreased EMI’s and installments have ended to a great extent. The banking giants are ready to revise their interest rates within a few days after the unexpected repo rate cut by the RBI yesterday (Jan 15, 2015). Rajan has opened the doors by slashing 25 bps on Thursday that has made a way for banks to come up with new policies. The depositors will earn lower interests as banks are believed to reduce the deposit rates to meet their margins.

United Bank of India (UBI) has already confirmed a reduced 25 bps in its base rate and the others are set to imitate the move. Most bankers have a similar view that the RBI’s rate cut has begun a cycle of rates slice this year. Some of the banks are although cautious as these immediate lending rate cuts will put pressure on grabbing their margins.

“Lending rates will come down but may happen with a lag effect. Banks will first start reducing deposit rates sharply. There had been some rationalization that had happened in different maturities in deposit rates in the last quarter but banks were still holding it up to provide for inflation-adjusted returns. The rate cut signals that inflation has been tamed and, therefore, deposit rates will come down first. The lending rate cut will follow this,” said M S Raghavan, Chairman and Managing Director, IDBI Bank.

According to T M Bhasin, Chairman and Managing Director of Indian Bank, while granters have reduced interest rates carefully on loan products for the festive season, RBI’s move will set the spark for lowering of banks’ base rate.

These rate cuts are expected to affect the home loans to the most. Credit growth in the banking body hindered to a three-month low of 10.5% as of December 26, 2014, compared with 14.5% at the same period earlier a year. "This (rate cut) will induce banks to offer new home loans at below 10% after a gap of around four years, which may act as a confidence building move for new home buyers," said Nayan Shah, managing director and chief executive of May Fair Housing Pvt. Ltd, a real-estate developer.

These alterations are important as these can be seen as a vanguard to the downward trend in borrowing rates.

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