According to RBI, now the loans from banks will be auto-synced with the repo rate, so that every loan borrower gets the benefit of periodic cut.
RBI has ordered banks to provide repo rate linked loans from October 1, 2019. Now banks will have to link the lending rates of loans according to the repo rate and transfer the benefit of the reduction RBI to end customers. Although RBI has also given freedom to banks to set lending rates via external benchmark.
The best thing for home buyers is that financial institutions have agreed on repo rate linked loan (RRLL) and SBI has come up to provide loan to customers. In the coming days, other banks will also follow the trail and soon start lending on this model. Apart from this, banks also have two other options so that customers can get benefit; 1. Rates offered by Financial Benchmark India Private Limited (FBIL) and 2. By adjusting the quarterly or half-year treasury bill.
RRLL is good decision to ensure benefit of repo rate cut to end users i.e; loan borrowers. Real estate sector was demanding this from very long time because interest rate cut will bring down monthly EMI of home buyers and encourage them to invest in property. After public sector banks, soon private banks will also review the lending rates and interest rate will fluctuate as per changing repo rate of RBI but this doesn’t mean that rates will reduce a lot. – Suresh Garg, CMD- Nirala World.
Earlier banks used to give loans according to the MCLR (Marginal Cost of Lending Rate), so that borrowers could not get the benefit even after the reduction in the repo rate. Whether to reduce interest rates or not was in the hands of banks. Even after the RBI reduced the repo rate by 110 basis points in last months, the banks did not bring down interest rate as per expectation of RBI. Hence RBI ordered the banks to provide repo rate linked loan (RRLL). Through this process, those who repay the loan will experience complete transparency.
MCLR based loans will be matter of individuals choice because Govt is making mandatory to link home loans with repo rate and pass on the benefit automatically to the end users rather than urging every time to banks. This will create a transparent model of interest rate from lenders to borrowers. I believe that Govt. and RBI must come up with similar kind of model to provide funds to real estate developers. The sector is creating large no of employment along with from MSME. – Dinesh Jain, MD- Exotica Housing
For the loan borrowers, it is important to know that banks will decide their interest rate by keeping a required margin which will be auto linked to the repo rate and keep on changing as per monetary policy of RBI. However, this will not cause the interest rate of the banks to fall drastically but a certain relaxation is expected soon.
When govt. is focusing on housing for all 2022 then it is quite optimistic vision of RBI to keep a check on rates of home loan. Option of repo rate linked rates will give cushion to home buyers. Such kind of benefits generally goes to new customers but i believe RBI should instruct banks to facilitate restructuring of loan of existing customers too without any condition. In long term, it will benefit retail customers. – Hari Om Dixit, Director- Gayatri Group.
Generally new customers get benefit of the revision or reduction in interest rates but this time the old buyers should also get the benefit of the new rate. RBI has also directed banks for existing customers but the situation will be more clear in the coming times. One more thing to note is whether there will be an option to come back to MCLR from RRLL in future!
IRW– Customers will also have to pay attention to the volatility of RRLL. In this condition, variation of the interest rate will depend on the change in repo rate of the RBI. Any up and down in repo will affect EMI of loan accordingly.