In its fourth bi-monthly policy statement, the Reserve Bank of India (RBI) decided to maintain the existing repo rate at 6% and cash reserve ratio (CRR) at 4%. The repo rate is the rate at which the RBI loans out money to other banks. A lower repo rate means a lower rate of interests for banks, which in turn will provide borrowers with a lower interest rate.
With the RBI repo rate unaffected, banks are unlikely to alter their lending rates as well. Therefore, a person looking to avail a Home Loan can make full use of the festive offers that banks are now providing, not having to worry about the rates falling in future. Banks are now making Home Loans cheaper by providing interesting festive offers specifically when it comes to Home Loan Interest Rates.
The degree to which a bank can lower the rates of interest depend solely on the extent to which they are willing to skim their margins on loans. It is also thought provoking to note that the RBI has cut the Statutory Liquidity Ratio (SLR) by 0.5%, brining it down to 19.5%. A lower statutory ratio means that banks have more lending capacity as they are required to maintain a lesser amount of liquid assets like cash or gold to form a part of the SLR. In layman’s terms, a bank will have to maintain assets worth at least 19.5% of the amount loaned out to borrowers. However, some bankers have mentioned that the reduction in SLR doesn’t make that big a difference as most bank usually have an excess of it.
Several banks have reduced their MCLRs in September, and are not expected to go down any further. All loans including personal, car and Home Loans are linked to a bank’s Marginal Cost of Funds Based Lending Rate (MCLR). At the moment, the average Home Loan interest rate is 8.5%, and the unaltered repo rates mean that it may not fall any further. The only possibility of a reduced rate would be if the banks are willing to sacrifice their margins due to competitive pressure during this festive season.
Effect of Repo Rate on Different Kinds of Borrowers
New Home Loan borrower
With effect from April, 2016, all loans provided by a bank are based on their pre-set MCLR. Apart from just looking at the MCLR, there are three other factors a borrower must take into consideration before availing a loan; the interest rate, the mark-up and the reset period.
Mentioned below are the Home Loan interest rates offered by various banks for New Home Loans
Home Loan interest rates
|Lender||Rate of Interest|
|SBI||8.35% – 11.90%|
|HDFC Bank||8.35% – 11.55%|
|ICICI Bank||8.35% – 9.45%|
|Axis Bank||8.35% – 10.50%|
|PNB Housing Finance||8.50% – 10.25%|
|Bank of Baroda||8.35% – 9.60%|
|LIC Housing Finance||8.50% – 8.90%|
|DHFL||8.60% – 9.75%|
|Indiabulls||8.35% – 8.85%|
|Indian Overseas||8.65% – 9.15%|
|Yes Bank||9.35% – 10.50%|
|Edelweiss||10.50% – 10.90%|
|UCO Bank||8.55% – 8.80%|
|Central Bank of India||8.50% – 9.50%|
|Andhra Bank||9.65% – 9.90%|
|Punjab and Sind||8.75% – 9.00%|
|Punjab National Bank||8.35% – 8.45%|
|Karnataka Bank||9.50% – 13.95%|
|Indian Bank||8.50% – 8.60%|
|United Bank of India||8.55%|
|Corporation Bank||8.85% – 9.25%|
|Bank of India||8.65% 8.70%|
|Allahabad Bank||8.50% – 9.00%|
|Oriental Bank of Commerce||8.45% – 8.55%|
|Jammu and Kashmir||8.65% – 9.00%|
|IDBI Bank||8.35% – 8.65%|
|Federal Bank||9.00% – 9.25%|
|Dena Bank||8.55% – 8.80%|
|Union Bank of India||8.30% – 8.35%|
|Canara Bank||8.65% – 8.75%|
Before availing a Home Loan, it is advisable to check if you are eligible for Pradhan Mantri Gramin Awaas Yojana (PMAY), as the Middle Income Group (MIG) scheme under this got an extension in September.
The MIG consists of two categories. The MIG – I and the MIG – II
MIG – 1 encompasses households with an annual income between Rs.6,00,001 and Rs.12,00,000. Whereas, MIG – II covers households that have an annual income in the range of Rs.12, 00,001 – Rs.18, 00,000.
In effect, anyone earning between Rs.6 lakh and Rs.18 lakh per annum can attain the benefits of subsidised loans under the PMAY, provided all other criteria are met.
In the first category, persons will receive a 4% interest reduction on a loan amount up to Rs.9 lakh, and those in the MIG – II category will get a 3% interest subsidy on a loan amount of up to Rs.12 lakh.
Home Loan borrowers (MCLR – Linked)
For borrowers under the MCLR – Linked scheme, the change in the repo rate or lack of it, doesn’t have any immediate impact. However, when the loan rest date comes up, these borrowers will have an immediate change in the interest rate. Usually, MCLR – Linked Home loans have a reset date of one year.
Home Loan borrowers (Base rate – linked)
Home Loan borrowers who are still linked to the base rate calculation will not be effected by any change in the repo rate. However, many banks like Bank of Baroda and Andhra Bank have lowered their base rates. State bank of India too has cut their base rate by 5 basis points to 8.95%, Oriental Bank of Commerce to 9.45% and Andhra Bank has reduced the base rate to 9.55% from 9.70%. Bank of Baroda has cut its base rate from 9.50% to 9.15%. Therefore, unless your Home Loan is nearing completion, it may help save Home Loan interest rate by switching to a MCLR – linked loan.
Although it is hard to speculate whether banks will or will not lower interest rates, it is certain that they will offer customers with some sort of offer during this festive season. Some banks waive processing fees while other banks are providing innovative cashback offers to lure in customers in this competitive time of the year.
Home Loan borrowers can avail good offers and if you have zeroed down on a house and looking for finance this is a good time to avail a Home Loan.