On Tuesday, the Reserve Bank of India (RBI) announced a reduction in its key interest rate, a move that will encourage banks to offer home loans at lower rates. This decision is anticipated to be a boon for aspiring home buyers, providing them with the much-awaited news that they have been hoping for. With the RBI's cut in the Repo Rate and the cash reserve ratio (CRR), subsidiary banks are now positioned to follow suit and decrease the home loan interest rates for their customers.
Consequently, these banks are set to supply loans with easier Equated Monthly Installments (EMIs), enhancing affordability for home buyers looking to enter the market. D Subbarao, the Honorable Governor of RBI, mentioned that this rate cut not only aims to enhance investment but is also an effort to keep inflation in check. He emphasized that this measure would positively influence liquidity and the overall flow of credit into the economy.
Under the new announcement, the RBI has slashed the Repo Rate and CRR by 25 basis points. As a result, banks can now lend to one another at a rate of 7.75%, down from 8%. This will lead to more appealing loan offers for consumers, allowing them to secure home loans, car loans, and corporate loans at significantly reduced rates.
However, existing borrowers might not see immediate benefits from the rates reduction, as banks may reserve the new, lower rates primarily for new customers. Experts indicate that there won't be an unexpected decline in existing EMIs; nevertheless, existing customers could consider approaching their banks to apply for new loans to pay off their existing ones.
In light of the cut in CRR, banks are anticipated to have an extra Rs. 18,000 crore available for lending, predominantly channeled towards home loans. For instance, IDBI Bank, a public sector lender, has already declared a 0.25% cut in interest rates on its home loans and other loan offerings, set to take effect on February 1, bringing the new interest rate down to 10.25%.