Rohit Agarwal, a 28-year-old executive working with a private firm isn’t really 'kicked' about the recent minor interest rate reductions announced by a few banks as part of their festival season offers. SBI reduced its home loan interest rate by 0.15% to 9.15 percent from 9.30 percent yesterday. Taking cue from the country's largest bank, its smaller private sector rival ICICI Bank too announced a 0.15% interest rate cut on its home loans from 9.35 percent to 9.20 percent today (the offer is vaild until November end).
At SBI, women borrower will get home loan at 9.10 percent while in case of ICICI Bank it is 9.15 percent. “Is this at par with what the RBI (Reserve Bank of India) has announced? It certainly isn’t. When the banks are quick to cut the fixed deposit rates, I wish they would cut loan rates with the same enthusiasm,” Agarwal said.
Banks announced the rate cuts following repeated nudging by the regulator for not passing on the benefits of cuts to borrowers and give a boost to the sagging economic growth. The announcement comes ahead of the crucial "busy season" in the second half of the fiscal which sees a spurt in loan demand. Though consumer may find the festive season offers attractive, in reality the actual relief in their monthly EMI burden is small.
For instance, with this 0.15% interest rate cut, the actual reduction in the monthly EMI burden on a Rs 50 lakh loan of 20 years is a mere Rs 485, which is hardly a factor for someone looking at taking a new loan. In the case of ICICI Bank overdraft, the salaried having an account with it, will get credit from Rs 5 lakh going up to Rs 1 crore against property owned by them. The product, 'ICICI Bank Home Overdraft', will offer dual advantage of a term loan as well as an overdraft facility, the bank said in a statement.
Businessmen and women will find the overdraft facility announced by ICICI attractive, said Arvind Bansal, chartered accountant. However, he wished that the housing sector become more affordable to the common man. “You have to encourage this sector by providing finance at a lower cost for a longer period. The commercial rate of interest prevalent in this country is unviable,” Bansal said.
Since January 2015, the RBI has reduced repo rate by a cumulative 175 basis points but banks have passed on only a fraction of this—by about 60-90 basis points—to the end consumer. Beyond RBI rate signals, there are a few other factors that has been playing a role in guiding the bank lending rates in recent years. Of them, the biggest factor is the bad loan trouble. The second factor-high small savings rate in the economy--too has been acting as an impediment.
This is because banks need to first cut their deposit rates before slashing their lending rates. Doing so was difficult because of high small savings rate and banks risked losing their depositors to these schemes. But, with the government reducing small savings rate, banks now have more room to pass on the rate. The government had last week reduced the interest rates on small savings schemes by 0.1 per cent for the October- December quarter of the 2016-17 fiscal. The schemes include Public Provident Fund, Kisan Vikas Patra, and Sukanya Samriddhi Account.
Akhil Bansode, a 36 year-old IT professional, was of the opinion that this rate cut would be beneficial only if banks would not charge processing fees for availing of the home loans. “Banks usually charge between Rs 5,000 to Rs 7,000 as processing fees. This fee renders any rate cut useless,” he said.
However, Sidharth Purohit, analyst at Angel Broking Banking feels that this reduced rate cut will encourage new home borrowers who were considering home loans. “As far as the banks are concerned, their assets will improve with these cuts when more borrowers avail of this scheme. It will definitely improve their credit flow.” But Purohit says unless there is Capex announcement by organisations, corporate loans would not pick up.
Data contributed by Kishor Kadam