Individuals can breathe a sigh of relief. The RBI’s repo rate and cash reserve ratio cuts will mean cheaper borrowing and lower EMI payments as bankers said they would pass on the benefits of Tuesday’s easing of the monetary policy to the end consumer.
The Reserve Bank of India cut the repo rate and CRR by 25 basis points. Soon after the cuts, IDBI, the National Housing Board and Royal Bank of Scotland announced reductions in their base rates.
While IDBI Bank reduced its base rate by a quarter percentage to 10.25 per cent, RBS affected a deep cut — 9 per cent from 9.75 per cent. The base rate is the benchmark to which all loan rates are linked.
“From the retail consumer segment, we are expecting strong growth in our home loan and auto loan portfolios,” said IDBI executive director R.K. Bansal. According to him, an individual who had availed a home loan of `25 lakh for a maximum of 20 years would see a reduction of around `600 in his EMI payment. In the corporate segment, Mr Bansal pointed out, companies which had put project expansion plans on hold would now feel encouraged to go ahead.
The asset liability committee (ALCO) of the largest state lender, SBI, is to meet on Wednesday to consider the quantum of reduction. According to SBI chairman Pratip Chaudhuri, the cost of funds for the bank would come down by `300 crore following the CRR cut, which it is willing to pass on to borrowers without compromising on the net interest margin. “But how and in which pocket it would be will be decided soon. Our ALCO will be meeting on Wednesday to finalise the details,” Mr Chaudhuri said.
ICICI Bank also hinted at a cut in its lending rate, which would have a positive impact on EMIs. However, the bank said it would wait a little longer for any reduction in deposit rates. HDFC Bank MD Aditya Puri said the reduction in the CRR would benefit the bank to the tune of `70 crore, which it is willing to pass on to its borrowers. “I would hope that certainly within three to four weeks one would see some impact on funding costs,” said HDFC vice-chairman and CEO Keki Mistry.
NHB also reduced its benchmark lending rate by 0.25 per cent to 9.75 per cent and decided to cut interest rates on special refinance schemes by 25 basis points. LIC Housing Finance and PNB also indicated that there was a strong case for lowering borrowing costs.