If you were hoping for a cut in your home mortgage or loan on your car, as a result of easing inflation and slowing growth, you’ll have to wait much longer than expected thanks to recent measures taken by India’s central bank. The Reserve Bank of India late Monday basically made it more expensive for banks to borrow funds, which in turn means that they will have limited cash to lend to consumers. This will be a setback for individual borrowers, who haven’t seen a reduction in their mortgage rate for more than a year, despite the fact that RBI has cut the benchmark interest rate by 1.25 percent points to 7.25%, since April 2012.
The major Indian banks have only marginally passed on this lower rate to consumers and currently charge between 9.95% and 12% for the typical home mortgage, depending on the amount and tenure of the loan. Lately, however, banks were under pressure from the Indian finance minister to cut rates, in order to boost economic growth.
Earlier this month, a handful of state-run banks such as the Union Bank of India, Bank of India and Canara Bank, lowered their base rate – the minimum interest rate it can charge a borrower – by a quarter percentage point.
But in light of RBI’s recent measures, analysts say there won’t be any more cuts.
If anything, they say, there’s a slight chance that the RBI could increase interest rates, in an effort to make Indian assets more attractive to foreign investors – which would help stem the decline of the rupee.
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Many people don’t know that banks don’t increase Home Loan EMIs but they increase the tenure of the home loan when the floating interest rate increases