Interest rates on Home Loan is the vital factor, a customer look for it before applying. and through its monetary policies tools like Cash Reserve Ratio (CRR), Repo rate and Bank rate; Reserve Bank of India plays with these interest rates.
Cash Reserve Ratio (CRR): It is mandatory cash requirement of banks total deposits to be kept with RBI. If CRR is reduced more money is left to chase the same number of borrowers and interest rates comes down. Similarly, if CRR is increased, money supply decreases - interest rate increases. It is directly proportional to interest rates.
Repo Rate: It is the short term lending rate of RBI to commercial banks. It is directly proportional to loan interest rates. i.e. decline in repo rate cause fall in interest rates.
Bank rate (also called discount rate): It is the minimum rate at which RBI provides loans to commercial banks. Changes in bank rate alter the cost of credit and then affect credit creation of banks resulting in direct proportion to interest rates.
Historical Examples:
1. In the last quarter of FY06-07, banks were charging 9.25-10% for floating rate loans and close to 11% for fixed rate loans. Then a repo hike by RBI to 7.5%, increases home loan rates by 50 to 75 basis points.
2. In the last week of April, the decision of RBI to increase the CRR from 7.5% to 8% raised home loan rates for HDFC bank and ICICI bank by 75 basis points.
3. RBI action of increasing repo rate by 25 basis points (7.75% to 8%) on June24,2008 - left even other banks with no option than to increase the lending rates.
In the last two years, huge fluctuations in Indian economy and lending rates were seen and future is still to be unveiled.
No comments:
Post a Comment