Home Loan EMIs To Come Down As RBI Cuts Rate

In the first bi-monthly review of its monetary policy for 2016-17, the Reserve Bank of India (RBI) on Tuesday (April 5, 2016) reduced the repo rate – the rate at which the central bank lends to the country's commercial banks in case of any shortfall – by 25 basis points to 6.5 per cent. RBI kept the cash reserve ratio (CRR) – the proportion of their deposits that banks are required to park with the central bank in cash – unchanged at four per cent.

RBI Governor Raghuram Rajan said banks had already cut their interest rates by 25-50 basis points, and after the latest repo rate reduction, borrowings would become even cheaper. “Borrowing is cheaper…and will continue to be so,” Rajan said, adding that the introduction of marginal cost of funds-based lending rate (MCLR) system would improve the monetary policy transmission. MCLR is the new benchmark lending rate at which the banks would now lend to new borrowers.

With regard to new bank licences, Rajan said RBI would explore the possibility of issuing licences for other differentiated banks, such as custodian banks and banks concentrating on wholesale and long-term financing.

The reduction in the repo rate is expected to lower your outgo on your home loan equated monthly instalments (EMIs).“Borrowers can expect a reduction of 10-15 basis points in banks' lending rates within the next two weeks. Between a month and two, there would be a reduction of 25 basis points,” Business Standard quoted Sahil Kapoor, chief market strategist, Edelweiss Securities, as saying.

Most industry players hailed RBI's decision and said the lower rate would boost demand in the economy and prompt banks to pass on the benefits of lower rates to their borrowers.

Deepak Joshi, president and chief business officer, Religare Housing Development Finance Corporation, said: “The repo rate cut, coupled with the MCLR, on which SBI has already taken a lead, will further reduce the lending rates in the market and increase credit offtake”. This means the demand on home loans will increase, as the EMIs would come down.

RBI has introduced a host of measures to streamline liquidity in the system, so that banks can lend to productive sectors. While indicating an accommodative stance going ahead, Rajan has taken key measures on the liquidity front.

The central bank had last reduced its short-term lending rate in September last year, by 50 basis points to 6.75 per cent. The cumulative reduction in the rate during 2015 was 1.25 per cent, while banks transmitted the benefit of 50-60 basis points to consumers.

Industry Speak

RBI's decision to lower the repo rate by 25 bps is a welcome step in the direction of encouraging investment in the country, and in creating demand in real estate sector as well. The commitment of the RBI to make borrowings cheaper and its forecast of a healthy economy are the needs of the hour for building confidence among investors and creating job opportunities. Thus, creating more demand as well as supply. We are sure that these initiatives are well in-line with the government's vision of “Housing for All by 2022”.
-R K Arora, Chairman, Supertech Group

First, the Real Estate (Regulation and Development) Bill, and now a repo rate cut could up the positive sentiment among home buyers. This will attract home buyers to real estate and allow them to stretch their budget since, it can reduce monthly EMIs. Moreover, it will push infrastructure projects, too. The rate cut has come at the right time. It's for the banks now to pass it to the home loan borrowers.
- Naveen Goel, Managing Director, Casa Greens

The repo rate cut is a welcome step. The dip in the rate will have a positive impact on the economy, across sectors. He added that there would be some renewed interest from prospective home buyers who were hit recently by the ready reckoner rate increase across Maharashtra.
-Ashish Raheja, Managing Director, Raheja Universal

Rising inflation and high interest rate have affected the real estate market. But, today's repo rate cut is exepcted to bring the interest rate of home loans if banks pass on the benefit to home buyers. Also, soon the Seventh Pay Commission will be reality and such moves will boost confidence among home buyers. This coupled with offers and discounts given by developers is expected to up the sales.
- Pawan Jasuja, Director, Finlace Consulting

The move is a win-win situation for both developers and home buyers. We appreciate the move as it is a good opportunity for developers and companies to raise funds who have laid down business plans for next year and are in the investment mode. They will be able to raise funds at competitive rates. On the other hand, home buyers, will be able to take up home loan at a lower interest rate.
- Shivakshi Gogia, Chief Executive Officer, Ascent Group

The cut was expected and I must say it is a good beginning for the fiscal 2016-17. This is a positive move for corporate and real estate sector as well as home buyers. With Navratra season round the corner, this rate cut will further add to the demand that comes for real estate during this nine-day festive season.
- Dinesh Jain, Managing Director, Exotica Housing