Rate slashed again, expect lower EMI 

In fact, the average lending rates for existing loans showed a 7 bps increase during that period.

Published: 05th October 2019 08:30 AM  |   Last Updated: 05th October 2019 08:30 AM   |  A+A-

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(File photo | Reuters)

Express News Service

MUMBAI:  The Reserve Bank of India’s Monetary Policy Committee on Friday stuck to its conservative 25 basis points (0.25%) cut in the policy rate to 5.15%, disappointing markets, though it promised to do more to revive economic growth.This was its fifth rate cut in a year. But banks haven’t shared the enthusiasm, as four RBI rate cuts between February and August totalling 110 bps resulted in banks bringing down their rates by just 29 bps. In other words, banks were miserly in bringing down your home or car loan rates. In fact, the average lending rates for existing loans showed a 7 bps increase during that period.

After some flogging by the government, banks have now been mandated to move their floating rate on retail and MSME loans to an external benchmark, ending their discretion and internal cost based loan rate setting since October 1.But would it mean a commensurate cut in loan rates? The Oriental Bank of Commerce was among the first on Friday to announce that repo-linked lending rates would come down by 25 bps immediately, reflecting the new reality of external benchmarking. 

“But given the flexibility to charge a spread/mark-up, considering other costs, the final lending rates are yet to come down in a commensurate manner,” CRISIL said in a research note. “Monetary transmission remains a work in progress,” said RBI Governor Shaktikanta Das.

“The monetary policy speech today clearly focused on growth and has done so by reducing the repo rate by 25 bps. This indicates an immediate reduction in borrowing cost for some segments of borrowers. For others it will come down over the course of time,” said Abheek Barua of HDFC Bank. Analysts see the central bank’s promise of a continued “accommodative” stance as a clear indication of further rate cuts in future. 


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