RBI cuts key lending rates by 25 basis points

RBI RBI policy repo rate

Also, MCLR is only one part of the story. Banks have a reset period, which means that the interest will remain fixed for that period for the borrower and will be revised after that period. The actual rate of home loan interest can be equal to the MCLR or have a "markup" or "spread" but can never be lower than the MCLR.

Under the current scenario, an industry official said that banks with surplus liquidity would have to first take a decision on a reduction in deposit rates, which will bring down their average cost of funds. These factors include - the reset-period, prepayment conditions, foreclosure and switching to another lender with no penalties. "Accordingly, the MPC chose to reduce the policy repo rate by 25", the RBI said in the statement. The bank will add a margin to MCLR to decide the actual rate of borrowing for a consumer. These banks can keep their lending rate higher than the rate they borrow money from the RBI. Dr. Michael Debabrata Patra, the executive director of RBI, voted for a status quo.

One basis point is one-hundredth of a percentage.

Shifting from base rate to new MCLR rate means your EMIs will come down.

The cut in repo rate is being expected given that SBI cut down its the interest rates for savings accounts under Rs 1 crore from 4 per cent to 3.5 per cent. The announcement is the very catalyst required to attract investors and spark about a surge in demand, ahead of the auspicious season of festivities to start post August. Experts are especially bullish about automotive and banking & financial companies, which are expected to gain significantly from RBI's rate cut. Banks will now be able to offer loans at more attractive rates.

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To this argument, the banker said, "Absolutely correct".

Effectively, there is a waiting period (usually 6 or 12 months) for the borrowers to see an impact on the EMI's. The festive season of this calendar year is fast approaching and this rate cut can allow the banks to cut down on their lending rates further.

The Indian market ended lower on Wednesday, the day the Reserve Bank of India (RBI's) Monetary Policy Committee (MPC) held its third Bi-Monthly Meeting in Mumbai. The RBI remains more committed to keeping inflationary pressures under check. It was followed by Jaiprakash Associates (9.95 million), Suzlon Energy (9.38 million) and Federal Bank (5.77 million).

Interest on housing loans, education loans, vehicle loans, business loans, etc, will be lesser. The point of citing this is to say that a rate cut wouldn't prompt banks to start lending in a major way unless the economic situation improves on the ground.

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