Will the RBI Policy review actually make home loans cheaper now?


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Repo Rate

The RBI reduced repo rates by another 25 bsp and brought it to 6.5 per cent. Will home loans interest rates finally drop?

With the Reserve Bank of India (RBI) reducing repo rates by another 25 bsp, the real estate industry is hoping for a burgeoning economy and a flourishing real estate sector. However, the burning issue for the masses still continues to be the sky-high interest rates on home loans. Will home loans actually become cheaper after the first bi-monthly monetary policy review for the year 2016-17? Experts anticipate, YES!

Lauding the move and sounding hopeful of a drop in home loan rates, Getamber Anand, President, CREDAI National explains, “In addition to the 25 bsp cut in the repo rate, the 75 bsp cut in the marginal standing facility (MSF) is an even a more important announcement by the governor. Moreover, the fact that RBI will now push banks to actually cut interest rates on home loans and automobiles loans is worth appreciating.”

In addition to this, the fact that the reverse repo rate has been increased will also aid banks in reducing the market lending rates, without hampering their own margins. Explaining the same, Vikas Bhasin, MD, Saya Group says, “Reduced repo rates but increased reverse repo rates will mean a win win situation for the banks. Increased Reverse repo will allow banks to keep their money with the Reserve Bank at higher rates than before. The Policy Rate Corridor has been reduced from 100 bsp to 50 bsp, which will now mean that the key rates will differ by 0.5 per cent at all times. The basic benefit being, banks will borrow from RBI at a lower rate, courtesy the decreased repo rate, and will lend to RBI at a higher rate thus increasing their profits on a twofold basis. This will help lower the prevalent lending rates in the market.”

Challenges towards reducing rate of home loans

In the last 18 months, the RBI has lowered the Repo rate by 1.5 per cent. However, the banks have passed on a benefit of hardly 0.5 per cent to the borrowers. Given these statistics, there is a huge scope of reducing interest rates, which if done, hold the potential to provide a massive fillip to the realty landscape of the country.

However, what is it that is holding banks from passing on the actual benefits to home buyers? “At this point of time, the banks are burdened with Non Performing Assests (NPAs), which call for a higher amount of provisioning. This has and is further expected to act as a key deterrent for banks to cut rates on retail lending,” explains Anand.

Despite the existing hurdles, real estate stakeholders hope that banks lower down interest rates in order to boost buyer sentiments, fasten real estate sale and enhance liquidity of developers.

A few other experts voicing their opinion on the matter are –


Banks will now be able to offer loans at more attractive rates. Cheaper loans for home buyers will prompt the interest of people in property purchase from end users and investors. Banks may revise the base rate too, which would benefit old home loan borrowers who are currently paying much higher interest rates than new borrowers would.

Manoj Gaur, President CREDAI NCR & MD, Gaursons India Ltd


Last year there were substantial rate reductions but the benefits were not passed on to the end users in full capacity. But, with more rate cut announced in the first policy review of the financial year shows that the market is improving and finally the financial institutions can now start passing the benefits to the end users.

Deepak Kapoor, President – CREDAI Western UP and Director, Gulshan Homz


The reduced rates would have a positive impact on the real estate sector and build up the customer confidence to a large extent. We also expect that there could be further rate cuts ahead in the time to come.

Gaurav Gupta, General Secretary, CREDAI RNE


The decision to cut the interest rate will now reduce the burden of EMIs on buyers and lead to more money in the hands of the consumer for greater spending.

Aman Agarwal, Director, KV Developers & Governing Council Member NAREDCO


Banks must immediately transmit the benefits of this and previous reductions to home buyers for their home loans. Lower interest rates make homes more affordable and this is an integral step towards achieving the housing for all goal of the Government of India.

Rohit Gera, MD, Gera Developments and VP, CREDAI – Pune Metro


We sincerely hope that both Finance Ministry as well as the RBI asks all the Banks to transfer the benefits immediately to help the end consumer, rather than help in buffering the bottom lines of the bank.

Amit Modi, Director ABA Corp and Vice President CREDAI Western UP


The real estate sector has seen sluggish demand in the last few years and the reduced rate cut will allow banks to offer loans at more attractive rates. Cheaper loans for home buyers will reduce EMI burden on buyers which is likely to see renewed interest in residential property purchase.

Vineet Relia, Managing Director, SARE Homes


This move will create positive sentiments and spearhead growth for the realty sector, bringing some respite to customers with home loans during the upcoming festival of Guddi Padwa and Akshayatritiya. Happy times to continue for the home loan seekers.

Manju Yagnik, Vice Chairperson, Nahar Group


Cheaper loans for home buyers and rising demand will create renewed interest in residential property purchase from end users.

Gaurav Mittal, MD, CHD Developers Ltd


The rate cut by RBI at this time is a great kick start for the stagnant real estate sector. It will ease the flow of money in the economy - the prospect of a cheaper home loan by reduced interest on loans.

Anil Kumar Sharma, CMD, Amrapali Group


The repo rate cut by RBI is a step in the right direction. It is also encouraging to hear that going forward, the central bank’s policies will remain accommodative. We hope the banks will pass on the benefit to the industry.

Kishore Bhatija, Managing Director – Real Estate Development, K Raheja Corp


The reduction in the repo rates will help in bringing down the home loan interest rates, which in turn is likely to bring in some amount of relief to the homebuyers. But, the banks will also have to pass down the benefit to the homebuyers in order to encourage them to move a step closer to purchasing their dream home.

Ashwin Sheth, CMD, Sheth Corp


I hope that the National Housing Banks, PSU banks as well as Pvt banks reciprocate the repo rate cut by reducing its rate of interest to ensure lower EMIS on loans.

Rajesh Prajapati, Managing Director, Prajapati Constrictions


We have seen banks passing on the rate cut benefits to home loan borrowers and we expect this trend to continue over the next few quarters. Given the positive trend, we expect the housing demand to grow.

Yash Gupta, MD and Country Head, Hines India


Cutting down the repo rates is sure to allow banks more margin towards cutting down on the lending rates, hence increasing the purchasing power of the common man.

Sudeep Agrawal, MD, Shri Group


With the repo rates being cut and reverse repo rates being increased, banks would be forced to cut on the lending rates. Reduced lending rates are destined to bring in positive sentiments in the market which will induce increased investments in the real estate sectors.

Rupesh Gupta, Director, JM Housing


Reduction in repo rate, coupled with Marginal Cost of funds based Lending Rate - (MCLR) on which SBI has already taken a lead, will further reduce the lending rates in the market and increase credit off take. Also, EMIs on retail consumer loans will further soften which will increase demand for auto and home loans.

Deepak Joshi, President and Chief Business Officer, Religare Housing Development Finance Corporation Ltd


With today’s announcement, the effective cumulative reduction in interest rate allowed by RBI so far comes to 1.50 per cent. This should bring down the home loan interest rate to a reasonably comfortable level, provided the Banks and Financial Institutions pass on the benefit to home buyers in full extent.

R K Arora, Chairman, Supertech Group


We hope that the banks will pass on the benefit to the consumers. This news augurs well for the sector that has also witnessed the passage of the real estate regulation bill and REIT.

Shishir Baijal, Chairman and Managing Director, Knight Frank (India) Pvt Ltd


It is actually a win-win situation for both the developer and the customer. The immediate benefit of a cut in lending rates is that the borrower’s loan eligibility increases. Also, a drop in lending rates means a reduction in EMIs which provides a relief to the customers. This move will increase the money supplied in economy, economic growth and purchasing power of consumers.

Ravi Saund, JMS Buildtech


The latest repo rate cut of 0.25 basis points is sensible and will surely bring down the interest rates of home loans. But the banks should ensure to pass the benefit to the home buyers.

Pawan Jasuja, Director, Finlace Consulting


The new maths of MCLR would make interest rates more sensitive to policy changes making borrowing cheaper than before.

Prashant Tiwari, Chairman, Prateek Group


The rate cut was an expected move and it is clear that markets will rejoice the reduced interest rates. High interest rates could lead the economy towards sluggishness; therefore, it was a required step to aid economic growth.

Sanjay Rastogi, Director, Saviour Builders Pvt Ltd


This rate cut was much anticipated with inflation under control and the government pledging to stay on the fiscal consolidation path. We hope that the banks will pass on the benefits in full to the consumers so that the economy as a whole benefits.

Manish Agarwal, MD, Satya Group and VP Credai -Delhi NCR


The host of measures taken for increasing liquidity such as raising the Reverse Repo rate by 25 bsp is quite encouraging. This will definitely result in reduction of home loan rates which will benefit the real estate sector.

Arjunpreet Singh Sahni,ED, Le Solitairian


We do hope the banks will generously pass on the benefits of the total 150 basis points of repo rate cut accumulated since the last year to the home buyers in the form of reduced home loan rates.

Pankaj Kumar Jain, Director, KW Group


The RBI is urging the banks to reduce the interest rate on home and auto loans by 0.5 per cent. This in turn will reduce the EMI for existing home and auto loan customers, thus increasing the eligibility of new customers. Sales of property will increase as the EMI will decrease,. making it a good news for customers. 

Rohan Agarwal, MD, Geopreneur Group

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