Home loan borrowers to get cheaper rates only after big corporates start borrowing

Home loan borrowers, students and small businessmen are most likely to get the benefit of lower rates after the corporates start borrowing and banks clean their books. This is the message that the Reserve Bank of India governor Raghuram Rajan gave while announcing his last policy before demitting office on September 4.

The RBI on Tuesday maintained status-quo on interest rates sending a signal that lending rates may not come down immediately. But at the same time, the RBI governor also said that it is disappointed that banks have passed only a modest rate cut to borrowers despite ample liquidity in the system and 150 basis points reduction in policy rates since January 2015. Banks have cut lending rates by just about 60 to 80 basis points in the last 20 months

He also pointed out banks are not passing the rates cut in pretext of liquidity likely to be tighten after $ 26 bn of outflow expected due to FCNR (B) deposits redemption in September.

“Despite easy liquidity, banks have passed past rate cuts into lending rates only modestly. Earlier, some bankers said that it was the lack of liquidity that was holding rates high, now I hear from some that it is fear of the FCNR(B) redemptions that is making them reluctant to cut rates,” Rajan said soon after announcing his last policy. “I have a suspicion that some new concern will crop up once the FCNR(B) redemptions are behind us,” he added.