Here's why home loan borrowers have a reason to rejoice, even as RBI has not cut rates

MUMBAI: Home loan borrowers may still have a reason to rejoice, even as the Reserve Bank of India (RBI) has not cut rates. On Tuesday, the RBI maintained a status-quo by not lowering the policy rate, but it has sent a strong message to banks to lower rates. The RBI has said that the policy stance is ‘accommodative’ which means that there is more room for rate cut in coming months.

“Banks have reduced the deposits rates and as the effect of this rate cut is seen on the bank’s balance sheet, banks will pass on further benefit to borrowers in terms of rate cut,” said Rakesh Sharma, MD& CEO of Canara Bank to ET.

Further, the RBI would soon announce a new formula on base rate- the floor rate at which they lend their best rated borrower. The revised formula is aimed to speed up transmission of policy rates to end user (borrower). Thus revision in policy rate would reflect in the lending rates of bank faster the case is right now. For instance, since January 2015, RBI has cut lending rates by 125 basis point, but banks have lowered lending rates by just about 60 basis points till now. RBI’s governor Raghuram Rajan has also indicated that there is a scope for banks to lower lending rates further.

Country’s largest bank, State Bank of India, has pegged its base rate at 9.30% while its home loan is pegged at 9.50%.

However, bankers also feel that there is a need for a reliable benchmark for banks to peg their lending rates for transmission to take place smoothly. “We do not have a reliable benchmark except the overnight interbank lending rate. Basing our advances on overnight lending rate would be too volatile and virtually making the rates becoming very uncompetitive when short term rates go up,” said V G Kannan, managing director, SBI.