After 3 years this is the first rate cut by Rbi and hence may sound good to a lot of consumers.
The next question is whether these rates cuts mean that rates will definitely come down for all customers. This is not true.Rbi policies affects rates but doesnt control interest rates etc.
The other factors that affect rates are liquidity situation with banks and the cost of borrowing.
With such policies that were declared by Rbi yesterday, the cost of funds may come down for Banks but will they reduce rates immediately etc will depend upon Banks. Banks also see there net margins ie profit margin before cutting rates and there cost of acquiring cash. Banks generate this cash from the customers who either hold accounts with them or do a fixed deposit with them.
This new policy affects the existing loan customer in the following way
1. Existing Home loan customers - If you have an existing home loan, Banks may reduce your emi by .25-.50 This will mean that if your average loan amount is 30 lac you will save Rs 900 as emi per month.
But this is if your bank reduce rates.We believe public sector Banks will reduce rates for existing borrower and then it may be followed by private banks to ensure customers doesnt do a loan transfer.
So good news may come for you after 12 raises in last three years. If your bank doesnt reduce your rates, check with loan transfer offers from other banks who have reduced there rates and that will help to reduce emi.
2.Existing Car loan customers- Most car loans come under fixed rate for tenure so any change in rates will mean that there will be no change in emi for for existing car loan customers.This means once you have taken Car loan your emi will remain same for the entire tenure so any such news will have no effct on your emi.
3.Existing Personal loan customers- Its like the car loans the Personal rates are fixed and there is no change for such customers. Rates and emi remain fixed for entire tenure for Personal loan customers.
Home loan- The market has grown by average 16 5 in the last year which is considered as slow by Industry standards. So to create more demand, Banks will reduce rates for new home loan customers by .5 basis points in coming months. Expect new home loan interest rates to be around 10% now where it was average 10.5% .This mean savings for new home loan customers.
Personal loan - The personal loan interest rates have remain stabled in last 3-4 years as this business had a lot more margins for Banks so they never hiked rates when there wer 13 annoucements by Rbi to ensure the credit growth is slowed and inflation is kept under tight control.
Car Loans - The car loan interest rates have increased by 2-2.5% in last 2-3 years with Rbi changes.We expect it to come down by .5% in this segment as car sales also have moved downwards this year in India.
Overall, rates will come down, but some banks will take time and some will take time.It will depend upon there satrtergy to acquire new customers with lower margins or to remain in sublime form.For wanna be loan customers, the rates will come down for sure in next 3-5 days.We expect Sbi,Lic to reduce rates first followed by Hdfc ltd ,Icici etc.
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