Repo cut will help banks, not borrowers
The Reserve Bank of India (RBI) on Tuesday cut the Repo rate by 50 basis points (bps), but top bankers indicated that the move may not benefit home loan borrowers in the short run.
Repo rate is the rate of interest at which banks borrow money from RBI. Ideally, the RBI rate cut decision on repo rate after 36 months of high interest rate regime should make way for decline in the interest rates on housing, automobile and commercial loans. Currently, the base rates of these banks range from 10 to 12 percent while they offer loans such as home loan at an interest rate between 10.75 percent and 14 percent and auto loans between 12 and 15 percent. But the responses of bank chief executives was not encouraging on that front.
But bank chief executives said any benefit for borrowers may have to be balanced by cut in interest rates on deposits.
State Bank of India (SBI) chairman Pratip Chaudhury said: “Of course, the rate cuts will be passed on.” He, however, indicated that the rate cut might not apply across the board, but only in particular segments.
ICICI Bank’s Managing Director and CEO Chanda Kochhar said: “Yes, you would see a reduction in interest rates, clearly it will have to be across both deposits and lending rates. In fact, a cut in the deposit rates is absolutely required.”
HDFC Bank Managing Director Aditya Puri said any impact would “take a while.”
Veteran banker like Deepak Parekh, Chairman of Housing Development Finance Corporation (HDFC), said it will be tough to lower deposit rates in the short-term, which in turn means lending rates are unlikely to be cut soon.
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