repo rate

Good News for borrowers, landing rate cut by SBI

Lending rate cut by SBI (state bank of india) is good news for borrowers, mainly customers with long term home loans of 20-25 years. Banks don’t change the EMI amount when rates change, but changes of the loan to align with new rate. A20 year loan shorter by almost three years, but loans which are nearing their end may not be affected. 90 basis points rate cut has reduced the tenure of a 25-year home loan by almost five years.

However, many loans taken before April 2016 continue to be linked to the base rate, shifting to new MCLR (Marginal cost of funds lending rate). Borrowers will pay a conversion fees for moving to MCLR, but this cost would be recovered in no time due to lower EMI. Those loans should actively consider this in New Year with long term. But when interest rates are growing, a slower revision in the lending rate protects the customer from the rate hike.
Some banks rearrange their rates every quarter, but others banks could wait for up to a year to make change. This works both ways for borrowers. . In a falling rate regime, it is better to go with a lender who resets the rate very often (every quarter or so).

Before SBI announced the cut, IDBI Bank had cut lending rates. Now, other banks will have no choice but to follow suit. If your home loan provider does not cut rates as expected, switch to a bank with a lower rate. You will have to do the paperwork (applying for a new loan and foreclosing the existing one) but the savings in EMI will be enormous. A customer with a Rs50 lakh loan for 25 years will save more than Rs3,000 every month if his EMI is lowered from 9.15% to 8.25%.

January 2, 2017 / by / in , , , , , , , ,
Rate cut by Reserve Bank next week a near certainty

Reserve bank of India directly moves to soak up liquidity from banks, hike in the cash reserve ratio (CRR) and how it would stabilise markets. These men know that a dip in growth and surge in deposits would force the central bank to lower interest rates sooner than later, pushes up bond rates and soften bond yields.

“A rate cut now is not conflict with cash reserve ratio (CRR) hike since this hike will be ultimately rolled back. The economy is at a stop now, so we should expect a cut. We were always expecting a 25-basis-point (bps) cut in December and another 25 bps later in the monetary, and we are sticking to our prediction” said Indranil Sengupta, chief India economist at Bank of America-Merrill Lynch (BofA-ML). It expects a total of 75 bps cut by September 2017.
Most economists believe a 25-bps rate cut to be a certainty next week as the central bank needs to support small and medium enterprises (SMEs) which have been hit by demonetisation of high-value notes.

CRR Hike an Incredible steps

The CRR hike announced a few days prior was just an extraordinary liquidity-absorbing measure rather than policy rate decision.

There is a widely shared perception that RBI may turn to more sophisticated policy tools to wipe up liquidity rather than impounding incremental deposits as CRR. Despite the fact that many may be hoping for a more aggressive rate cut by RBI in Wednesday’s monetary policy, chances are that the central bank may hold back ammunition for the future as the full impact of demonetisation unfolds by end March.

On 26 November, RBI asked banks to keep all incremental deposits garnered between September 16 and November 11 with the central bank to absorb the avalanche of liquidity in the banking sector after demonetisation was announced on November 8. RBI will survey these measures on 9 December.
Bond yields, which shot up 17-18 basis points soon after the CRR hike, have fallen almost 10 basis points since then.

December 2, 2016 / by / in , , , , , , ,