New home-loan borrowers and people waiting to buy a house or a car stand to gain marginally as banks have begun to slash interest rates on home and auto loans.
A directive to this effect was issued to banks by finance minister P Chidambaram.
Chidambaram, in a review meeting with the chiefs of public sector banks on August 18, had asked banks to cut interest rates on retail loans in order to boost India’s slowing economy. The Reserve Bank of India had also decided, in its monetary policy review held on July 31, to lower Statutory Liquidity Ratio (SLR).
SLR refers to the proportion of bank deposits that need to be invested in government bonds.
Public sector lenders Syndicate Bank and Indian Overseas Bank have already announced a cut in interest rates on housing loans in the range of 0.75-1 percentage points, while Central Bank of India has said it will cut interest rates on housing and car loans by up to 0.5 percentage points from September 1.
The Union Bank of India has also announced a waiver on processing charges, which was 0.5% of the loan amount, on home and car loans.
“Reduction in interest rates will push up the demand for housing and auto loans in the country which in turn will give a fillip to related sectors such as construction and automobile,” said M Narendra, chairman and managing director, Indian Overseas Bank.
Existing home and auto loan borrowers however, have little to cheer about this move and will not see any reduction in their EMIs as they will not be passed on the benefits of an interest rate cut.
Earlier in the month, State Bank of India lowered its interest rates on housing and auto loans by up to 0.60 percentage points encouraged by the RBI lowering its SLR by 1 percentage point.
The lowering of SLR released around Rs. 60,000 crore for banks and is being used to cut interest rates and offering schemes such as waivers in processing charges.