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Cheaper loans on way

Planning to buy a car or a house? There could be some good news around the corner. HT reports. A fine line separates growth and inflation

india Updated: Apr 18, 2012 01:49 IST
HT Correspondent

Planning to buy a car or a house? There could be some good news around the corner.


On Tuesday, the Reserve Bank of India (RBI) announced a 0.50 percentage point cut in the repo rate — the rate at which banks borrow from the RBI — which should goad banks to slash lending rates. This is the first cut in nearly three years.

A lower repo brings down banks’ borrowing costs, prompting them to slash interest rates for final home, auto and corporate borrowers.

“Of course, there would be a transmission,” said Pratip Chaudhuri, chairman, State Bank of India. “The transmission of the last CRR (cash reserve ratio, or the proportion of deposits banks have to park with the RBI), cut has also not happened fully because that came in March. We thought we would wait till (April) 17th and do a comprehensive cut.”

ICICI Bank, India’s largest private sector bank, hinted that the latest RBI move will prompt banks to reduce lending rates. Other banks echoed similar opinions.

“With cost of funds coming down, customers can expect banks cutting lending rates over the next one month,” said KVS Manian, president, consumer banking, Kotak Mahindra Bank.

At present, auto loans range from 12% to 15%, while personal loans range from 15% to 20%.

Due to hardening in interest rates, proportion of customers opting for vehicle finance came down substantially in the past one year.