Home Loans May Not Be Cheaper Across Banks

With the RBI cutting its policy repo rate last week for the fifth time this year and banks linking retail loans to the external benchmark from October 1, there is optimism among borrowers that loans have become significantly cheaper.

- RADHIKA MERWIN

With the RBI cutting its policy repo rate last week for the fifth time this year and banks linking retail loans to the external benchmark from October 1, there is optimism among borrowers that loans have become significantly cheaper. But while the new interest rate regime adopted by banks ensures that lending rates react more quickly to the RBI’s future rate actions, it does not necessarily imply cheaper loans across banks.

Importantly, effective lending rates on home loans have, at best, fallen by 70-75 basis points, even after taking into account the linking of lending rates to the repo rate. This means that only about half of the RBI’s rate cut (135 basis points) so far has been passed on to borrowers.

From here on, while bank lending rates will move in tandem with the RBI’s action, borrowers have not received a chunk of the earlier cuts. Here are some facts borrowers must keep in mind before jumping onto the loan bandwagon.

Not cheaper than MCLR