Home loans and other loans to become cheaper, fixed deposit rates also maybe cut Posted in Car Loans, Fixed Deposits, Home Loans by Ram Vishnu

December 7, 2008



December 06, 2008, Ratekhoj.com. Measures taken by the Reserve Bank of India to boost economic growth are likely to result in home loans, car loans, personal loans and other loans becoming cheaper. As announced in a press release by the RBI: The Reserve Bank has reviewed the evolving macroeconomic and monetary/liquidity conditions and has decided to take the following further measures: It has been decided to reduce the repo rate under the LAF by 100 basis points from 7.5 per cent to 6.5 per cent and the reverse repo rate by 100 basis points from 6.0 per cent to 5.0 per cent, effective December 8, 2008.

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We are working on a similar refinance facility for the National Housing Bank (NHB) of an amount of Rs 4, 000 crore. We will announce the details after consideration of the proposal by the Central Board of the Reserve Bank which is meeting next week.

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It has been decided that loans granted by banks to Housing Finance Companies (HFCs) for on-lending to individuals for purchase/construction of dwelling units may be classified under priority sector, provided the housing loans granted by HFCs do not exceed Rs.20 lakh per dwelling unit per family. However, the eligibility under this measure will be restricted to five per cent of the individual bankâs total priority sector lending. This special dispensation will apply to loans granted by banks to HFCs up to March 31, 2010. Repo rate is the rate at which banks borrow money from RBI and the reverse repo rate is the rate at which banks park their short-term excess liquidity with the RBI. A reduction in the repo rate as announced by RBI above will help banks to get money at a cheaper rate. It is expected that this will be passed on to consumers in the form of cheaper housing, car and other loans to stimulate economic growth. As reported in The Hindu, the RBI GovernorÂ D Subbaro expectsÂ cuts in both lending as well as fixed deposit rates: Giving a clear signal to banks to cut the interest rates, the Reserve Bank of India on Saturday reduced the short-term indicative rates â the repo rate and the reverse report rate by 100 basis points each to 6.5 per cent and 5 per cent â with effect from December 8. This is likely to result in a further cut in interest rates of housing loans and other consumer and personal loans by banks. … âThe cumulative impact of the measures in Saturdayâs package, together with earlier measures, should be to step up demand and arrest the growth moderation. In particular, the reduction in the repo and reverse repo rates should result in a reduction in the marginal cost of funds to banks and enable them to improve the flow of credit to productive sectors of the economy on viable terms,â RBI Governor D. Subbarao said here while announcing a slew of measures to stimulate the economy. âOur expectation is that banks will respond to the measures today by lowering lending and deposit rates,â the RBI Governor added. Earlier, the RBI signalled a lowering of the interest rate structure by reducing its key policy repo rate by 150 basis points from 9 per cent as on October 19 to 7.5 per cent on November 3. Taking the signal from the repo rate cut, the top five public sector banks have reduced their benchmark prime lending rates (BPLR) from 13.75â14 per cent as on October 1 to 13â 13.50 per cent now. The central bank expects more banks to reduce rates following the latest measures. As reported in Indian Express: The Reserve Bank of India (RBI) sent a strong signal to banks to lower interest rates on all types of borrowings by cutting the repo and reserve repo rates by 100 basis points. The cuts are part of a mega economic stimulus package to make borrowing more affordable. Â … In another measure that will result in lower home loans, the RBI has decided that loans granted by banks to housing finance companies (HFCs) for on-lending to individuals may be classified under the priority sector, provided the loans granted by HFCs do not exceed Rs 20 lakh per dwelling unit per family. The priority sector status will enable banks to reduce interest rates on such loans significantly. The RBI had cut the repo rate from 9 per cent to 7.5 per cent in October-November as a signal to commercial banks to bring down rates, but not many private banks did that. This time, RBI Governor D. Subbarao, while announcing the cut in rates in Mumbai on Saturday, said in no uncertain terms that commercial banks âneed to get the signalâ. Â âWe hope that commercial banks (will) act accordingly. It is a matter of time before banks take a decision on interest rates on home loans. Monetary transmission takes time. However, as there is adequate liquidity in the system now and the demand for money is also falling, interest rates will also move down,â Subbarao said. On Friday, ICICI Bank reduced its interest rate for home loans of Rs 20 lakh and below by 1.50 per cent to 11.50 per cent. Bankers said that with a comfortable liquidity position and fall in inflation, interest rates would now fall across the board.Â As reported in Business Standard: Housing finance companies (HFCs) are contemplating a cut in their prime lending rates (PLRs) following the latest measures of the Reserve Bank of India (RBI) to stimulate the economy. … âNaturally, we would reduce our prime lending rates as we are expecting an instant fund flow at a cheaper rate, subsequent to the policy, which would lower our cost of funds,â said LIC Housing Finance Director and CEO R R Nair. Â It’s likely that there will be cuts in home loan and other loan rates in the near term in response to RBI’s measures. Therefore, people contemplating a home purchase in the near future can expect benefits from these measures. Â Â





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