4 key personal finance takeaways from today’s RBI announcements

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December 4, 2020 12:54 PM

The RBI decision to maintain status quo and keep the repo rate and reverse repo rate unchanged could have some significant personal finance implications.

The interest rate levied is 8.5 per cent onwards while the platform is integrated with the government’s CGTMSE to check the eligibility of borrowers.

The Reserve Bank of India’s decision in its latest monetary policy review meeting to maintain status quo and keep the repo rate and reverse repo rate unchanged at 4% and 3.35%, respectively, as inflation remains a concern in a recovering economy could have some significant personal finance implications.

Here are 4 key personal finance takeaways from today’s RBI announcements:

1. Repo-linked home loan rates likely to remain unchanged: Ever since the central bank reduced the key policy rate by 115 basis points since the beginning of 2020, repo-linked home loans are being offered in record-low rates. In fact, according to latest data, as many as 10 banks are currently offering such loans starting at under 7% p.a. So, if you’re servicing a repo-linked home loan, your EMIs are likely to remain the same unless your bank decides to increase the risk margin applicable to you.

You’ll be well-advised to make regular repayments to ensure your credit score doesn’t see a major dip. You could also aim to make adequate prepayments during this low-rates phase to cut down your loan burden and become debt-free faster. Also, it continues to remain a good time for those who are planning to take a new home loan to benefit from the low interest rates. However, ensure you check your credit score in advance and take necessary steps to improve it before applying for the loan as the best possible rates in the repo-linked loan regime are given to those whose scores are above 750-800.

2. MCLR-linked home loan rates are not just dependent on repo rate: MCLR rates are typically reset by the lenders every 12 months or 6 months. So, your home loan EMIs will decrease only if the bank decides to cut the interest rate during the reset period according to its policies. That being said, if you’re towards the beginning of your MCLR home loan, you can consider moving to a repo-linked loan regime to avail the lower rates after paying the required conversion fees. Do so only if the difference in rates is considerable and ensure you have a good credit score to avail the lowest rates.

3. FD rates will continue to remain low but unlikely to fall further: The repo rate cuts necessitated by the ongoing pandemic lowered the FD rates which has been a cause of concern for risk-averse investors like senior citizens who primarily rely upon bank deposits for their sustenance. While the RBI’s latest decision to keep the repo rate unchanged is unlikely to lower FD rates further, it would still not bring back the cheers for FD investors.

However, they should also realize that uncertainties are far from over and in such a situation, the assured returns of an FD shouldn’t be completely ignored. That said, investors can look for other avenues for higher returns which are strictly aligned with their financial goals, risk appetite and liquidity requirements.

4. Further boost for digital payments: The RBI has taken a number of steps since the pandemic outbreak to boost contactless payments. The latest two announcements to make RTGS transactions available on a 24×7 basis and increase the cap for contactless card transactions from Rs. 2000 to Rs. 5000 from January will further contribute towards popularizing contactless payments which have become a necessity of sorts in these times.

(The writer in CEO, BankBazaar.com)

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