Within a fortnight of the Reserve Bank of India (RBI) cutting repo rate, many banks have cut their lending rates making home loans, auto loans and other consumer loans cheaper up to 0.25 percentage points for the customers who bore the brunt for nearly three years.
Banks have reduced their base rate by 0.25 percentage points following 0.50 percentage points cut in repo rate, the rate at which the central bank lends to banks, by RBI on April 17.
Experts believe that with recent cuts will encourage those consumers to go for home loans who were postponing their decision to buy their dream home. “Clients who were postponing their decision to acquire house are likely to go ahead and buy the property, which means more clients going in for home loans,” said Vipul Patel, director, Home loan Advisors.
Just two days after the repo rate cut, ICICI Bank, the largest private lender, and Punjab National Bank (PNB) became the major lenders to announce cut in lending rates. Taking the cue from them, other banks also lowered lending rates.
While all the banks lowered their base rate, State Bank of India (SBI) was the only player who left the rate unchanged but reduced interest rates on its car loans.
Under the revised base rate, interest on Rs. 30 lakh home loan for a tenure of 20 years varies from 10.25%-12.25% while interest on car loan having tenure of five years is in 10.5%-14% range.
Some of the major lenders that have not lowered lending rates are HDFC bank, Axis Bank and Bank of India. They are waiting for their cost of funds to come down.
“Cost of fund for us has not changed significantly,” said Somnath Sengupta, executive director and chief financial officer, Axis Bank- the third largest private bank in India. “We expect it will probably take a month before we see appreciable reduction in the cost of funds.”
Banks have also cut deposit rates up to 1 percentage points across various maturities. Financial planners say investors, who have less risk appetite, should go for term deposits and lock their money in deposits having maturity of more than three years as deposit rates are likely to fall further during the year.