Rate cut Is Fine, it’s Prices that Matter

“RBI’s action was on expected lines. The repo rate reduction will facilitate banks and housing finance companies to reduce home loan rates marginally which will benefit consumers,” says S. Sridhar, Advisor RICS-South Asia and former chairman, National Housing Bank.

Following the RBI decision, the National Housing Bank (NHB), the regulator and refinance provider to housing finance companies also slashed its lending rates by 0.25 per cent.

A home loan borrower would stand to gain marginally as illustrated in the table. For a loan amount of Rs 20 lakh at 12 per cent interest, the EMI currently payable is Rs 22,022. At a 25 basis point cut, the EMI on the same amount is Rs 21,674, a difference of Rs 348, or Rs 17 per Rs 1 lakh of loan amount.

“Our Assets Liability Management Committee will examine as to what extent and to what percentage, benefits can be passed onto the customers,” said VK Sharma, director and chief executive, LIC Housing Finance. When asked if the revision will only be for new customers or existing customers too, he said, “We will review the prime lending rate and the benefits will be passed to all.”

The rate cut, however, would not necessarily mean that the liquidity tap has been opened for the real estate sector. “Of course, each lender will have to take a view based on respective asset-liability management and margin position. However, one is not sanguine about increased funds flow to

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