RBI Policy: Hope for easier home loan, car loan becomes slim

KOLKATA: Hope for further easing of interest rates on home loans and car loans becomes slim with Reserve Bank of India keeping benchmark repo rate unchanged and announcing measures to suck out excess liquidity from the system.

Although the Monetary Policy Committee of RBI has observed that there is further scope for complete transmission of previous repo rate cuts, experts feel that banks are least likely to rush in doing so as liquidity overhand will be auto-corrected when the government starts its borrowing programme.

“Banks may lower lending rates only if RBI lowers repo rate, which will depend on how monsoon plays out,” said Madan Sabnavis, chief economist with CARE Ratings. “The liquidity issue will be self-corrected with the government planning to complete 64% of its borrowing in the first half,” he said.

However, State Bank of India and HDFC Bank lowered their respective base rates last week, raising expectation of rate alignment by other banks.

The government pegged its total borrowing for FY18 at Rs 5.8 lakh crore while pegged market borrowing at Rs 3.5 lakh crore.

The RBI’s liquidity-correction measures include allowing banks to invest in real estate investment trusts and narrowing the repo rate and reverse repo rate corridor, many expects that once the government starts borrowing, the liquidity situation will correct itself.

The central bank raises reverse repo rate by 25 basis points to 6%, a measure to reward banks for parking excess fund with it.

At the end march, banks were sitting on Rs 3.1 lakh crore of surplus liquidity.

“Looking ahead our endeavour would be to drain out the remaining liquidity overhang, manage the new drivers of liquidity in 2017-18 and ensure that the normal requirements of liquidity consistent with the needs of a growing economy are met,” RBI Governor Urjit Patil said.

RBI has last reduced repo rate, the rate at which banks borrow from RBI, in October last year to 6.25%, compared with 8% before the accommodative policy begun in January 2015.

Credit growth remains tepid for most of last year and according to latest RBI data, it was 4.4% at the end of the March 17.

“The increase in the reverse repo rate and status quo on the cash reserve ratio are likely to offer relief to banks from the point of view of managing the costs associated with their excess liquidity,” said Naresh Takkar, Managing Director at Icra.

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