Loans to get cheaper in India
mumbai — It’s a shower of sops on Indian voters. The Reserve Bank of India (RBI) cut interest rates on Thursday, handing a surprise boost to Prime Minister Narendra Modi ahead of general elections, and giving a breather to the middle-class households paying back loans.
To make access to finance easier for small farmers, the central bank also said the limit of collateral-free farm loans given by banks will be raised to 160,000, up from 100,000 now. In recent weeks, it also eased curbs on some state-owned bank lenders and is set to provide the government with a bigger dividend out of surplus central bank funds.
The monetary policy committee of the RBI said the benchmark repo rate — the level at which it lends to commercial banks — would be reduced by 25 basis points to 6.25 per cent.
It comes a week after Finance Minister Piyush Goyal proposed to double the threshold tax exemption limit to 500,000 and increased the standard deduction to 50,000 from 40,000. It will benefit 30 million middle-class tax payers. —
dubai — The repo rate cut of 25 basis points announced on Thursday by the Reserve Bank of India — the first since August of 2017 — will reduce borrowing costs and make EMIs cheaper for all loans availed on a floating interest rate.
The revised repo rate — the interest rate at which the RBI lends money to banks — now stands at 6.25 from the previous 6.50. One basis point is equal to one-hundredth part of a percentage. For NRIs in general, the rate cut will not have any significant impact, except for those who hold floating mortgage rates in India. Most other loans, including auto and personal borrowings, are normally given at fixed rates.
The Monetary Policy Committee (MPC) of the RBI said that it is changing its policy stance from calibrated tightening to neutral. A ‘calibrated tightening’ stance means that the likelihood of a cut in the repo rate is unexpected.
With the RBI lowering the repo rate, banks will follow suit and reduce their marginal cost of funds based lending rates (MCLR), or the minimum interest rate that a bank will charge on the loan.
A rate cut will help bring down the interest rate further, thus helping home loan and SME borrowers
A Balasubramanian, CEO of Aditya Birla Sunlife AMC
Easing of borrowing costs is likely to result in NRIs availing more loans... to accelerate investment Sudhesh Giriyan, COO of Xpress Money
“Against the backdrop of benign inflation rates and unanimous votes by the MPC, India became one of the first countries in Asia to change its stance from ‘calibrated tightening’ to neutral,” said Sudhesh Giriyan, COO of Xpress Money.
“This landmark move may drive increased lending within the economy. Easing of borrowing costs is likely to result in NRIs availing more loans in India to accelerate investment opportunities in real estate, entrepreneurial ventures etc,” said Giriyan.
Joe Verghese, managing of, Colliers International India, said the rate cut is unlikely to have a real impact on sales now but it does help in improving sentiments.
“The homebuyer today ends up on a floating rate and realises it is not wise to use current interest rates as a key criterion for timing the home buying decision.”
Among the other decisions taken by the Monetary Policy Committee include adjusting the reverse repo rate — the interest rate at which banks lend money to the RBI — to 6 per cent, and the marginal standing facility rate and the bank rate to 6.5 per cent.
In a statement, the MPC said that its decisions were taken with the objective of achieving a consumer price index (CPI) inflation of four per cent within a band of plus-/minus-2 per cent.
“The rate cut will boost economic growth and will likely to benefit NRI home buyers through mortgaged route with reduction of EMIs if the borrowing is with floating interest rate. It will help boost the real estate sector and will lift property buyer sentiments,” said Nimish Makvana, director of the Institute of Directors UAE Chapter.
This is the first credit policy of new RBI governor Shaktikant Das, and as expected he has not only changed his stance from calibrated tightening to neutral and also has cut rare by 25 bps, said A Balasubramanian, CEO, Aditya Birla Sunlife AMC.
“Recognising the importance of foreign portfolio investors, the RBI has relaxed investment norms and also has relaxed the norms for companies raising funds from overseas through both ECB and Masala Bond route. A rate cut will help in bringing down the interest rate further thus helping home loan borrowers and SME borrowers,” said Balasubramanian.