Kolkata: Reserve Bank of India’s Monetary Policy Committee wielded the scissors liberally, slashing 50 basis points from the Repo Rate, bringing it down from 6% to 5.5%. If taken from early February, the decline was from 6.5% to 5.5% — a crash of 100 basis points in four months flat. But the moot question is, what can be the impact on your pocket?
The equity markets reacted predictably. Sensex 30 fired a nearly 750-point salute between 10:15 am when it was at 81,407 and 11:15 am when it surged to 82,155 points. With cost of capital coming down it could certainly mean rising consumption and increased margins for corporates in general. But what can it mean at the retail level?
When the RBI slashed Repo rates in the period between February and April by 50 basis points, all banks in the country responded by bringing down the lending rates on all types of retail loans such a personal loans, home loans and vehicle loans. Against that backdrop, what can an overnight trimming by 50 basis points imply. While it will certainly bring down all lending rates, the most telling impact can be on home loans, vehicle loans and personal loans.
For example, home loans are one of the most significant loans since they can boost the sale of dwelling units, which, in turn, can lift the fortunes of a number of sectors such as cement, steel, electricals, paint, home decor items, furniture etc. The home loans rates of major PSU banks in India hover between 7.8% and 8%. The rate for Canara Bank is 7.8%, Bank of Maharashtra, Central Bank, Union Bank (all 7.85%), Indian Bank, Indian Overseas Bank (both 7.9%), State Bank of India, PNB, Bank of Baroda (all 8%). All these can come crashing and move towards the 7.6-7.5% mark within a few days.
While the interest rate cut bodes well for the consumer, it cannot send the same optimistic signal to depositors. All banks have already slashed their deposit rates — especially fixed deposit rates across all tenures — following the 50 basis point cut till April. Now with the jumbo cut, banks are sure to heavily cut the existing FD rates.
