Banks are expected to reduce home, car and personal loan rates after the Reserve Bank of India (RBI) on Tuesday cut its lending rates to banks. Leading banks said that they would make retail loans cheaper.
RBI governor Raghuram Rajan said that he expects loan rates to fall by 0.5% in 4-5 months. The central bank cut the rate at which it lends money to banks by 0.25% in its first monetary policy review of 2016-17, the first after a pause of six months.
Banks are also expected to come out with fixed-loan products to lock in customers at a particular rate for a fixed period. Ever since the rate-easing cycle was unleashed by the RBI in April 2015, the central bank has cut lending rates by 1.5%, but banks have reduced lending rates by 0.7%, citing high cost of retail deposits.
The RBI governor said in a press conference: "We expect banks to cut lending rates by up to 0.5% in the next five months as cost of deposits fall."
Bankers, meanwhile, said that rates will start falling within a month after they bring down deposit rates. With the first quarter being a lean season for loans, banks will be tempted to reduce rates and attract customers, especially retail borrowers taking home and car loans.
Rajiv Anand, group executive & head, retail banking at Axis Bank, told dna: "We will review our deposit and lending rates in a month. Our deposit rates will be revised first and then lending rates."
Some banks like IDBI said that in line with the falling cost of borrowing, the bank will reduce its lending rates.
SKV Srinivasan, executive director, IDBI Bank, told dna: "We will be announcing a reduction in our home and auto loans in the next two days. Our home loans are at 9.65%-9.75%. We will have to reduce it further in line with competition."
India's largest bank, the State Bank of India (SBI), has already cut its home loan rates by 0.10% early this week.
Some banks are raising the loan limits to retail customers. For instance, Bank of Baroda (BoB) has already increased the limits on home loans from Rs 3 crore to Rs 10 crore and car loans to Rs 1 crore and reduced down payment requirements from April 1.
A senior BoB official said: "We will revise our lending rates on April 7 and bring down home- and car-loan rates. Our home loan rates range from 9.65% to 9.75% and car loans range between 9.90 % and 11.40%. We may bring then down by 0.10-0.20%, depending on the cost of our deposits."
The fall in retail lending rates is expected to breathe some life back into the real-estate sector, which is reeling under a long recession.
Rajeev Talwar, CEO, DLF Ltd, said he expects banks to soon start lowering lending rates. "This, along with the government's push to the housing sector, should reinvigorate demand in this critical segment of the economy."
Manju Yagnik, vice-chairperson, Nahar Group, agrees. "The move by the central bank will create positive sentiments and spearhead growth in the realty sector, bringing some respite to customers with home loans during the upcoming festival of Guddi Padwa and Akshayatritiya. The sector is going through a makeover and we welcome any sops given by government at this stage that will help in propelling the sector," said Yagnik.
Niranjan Hiranandani, CMD, Hiranandani Group, however, said that the rate cut by 25 basis points falls a bit short of market expectations as practically everyone was expecting it to be 50 basis points.
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