SBI offers first Diwali cheer for home buyers as RBI surprises with 50 bps rate cut

Home loans borrowers have a reason to cheer this festive season. The Reserve Bank of India (RBI) today in its fourth bi-monthly monetary policy announcement affected a 50 basis points (bps) reduction in its key policy rates. Following the rate cut, repo rate, the rate at which RBI lends money to commercial banks, came down to 6.75 percent from the current 7.25 percent. [caption id=“attachment_1525315” align=“alignleft” width=“380”] Flexible loans. Agencies[/caption] The higher rate cut move by the central bank will nudge banks to soften their lending rates, thereby giving millions of borrowers to take advantage of the possible lower interest rates going ahead. Though the transmission of monetary policy generally decision takes time, some banks have already cut rates within few hours of the apex bank’s rate cut. Take for instance, The State Bank of India (SBI) country’s largest lender slashed its lending rate by 0.40 per cent. The new rate will stand at 9.30 per cent from 5 October onward. The apex bank’s generous dose of a 50 basis point cut came as a surprise for the industry as most had expected a token 25 bps cut. In fact, since the beginning of the fiscal year, the apex bank, including today’s fresh cuts, has lowered policy rates by as much as 125 basis points. The central bank in its statement said, “While the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed.” More banks are expected to follow suit as far as lending rates go. The largest private sector lender ICICI Bank hinted at cutting its base rate by at least 0.25 percent. “Clearly, interest rates will come down, base rates will come down. A large part of the cut will get transmitted. When I say a large part of the thing (repo rate) will get transmitted, it should mean more than half,” ICICI Bank’s managing director and chief executive Chanda Kochhar told PTI earlier today. Another important move the apex bank announced for home loan borrowers came in the affordable lending space. The RBI has proposed to reduce the risk weightage on affordable housing applicable to lower value but well collateralised individual housing loans. This move, if okayed, will provide a major boost to the struggling housing sector as well. More banks will decide on their new lending rates, if any, in their individual ALCO meetings with their respective board members.