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Know why the loans not being cheap even after the repo rate gets low?

Friday - April 5, 2019 11:26 am , Category : WTN SPECIAL
Customers fail to get the benefit of reduced repo rate
Customers fail to get the benefit of reduced repo rate

Due to income and profit, the banks not giving profits of reduced repo rates

APR 05 (WTN) - From time to time, you have heard that India's central bank, Reserve Bank of India, has cut the repo rate. After that you read and hear that after the repo rate being low; home loans, auto loans and personal loans can be cheap. But in reality these loans do not be as cheap as you expect. Do you know why this happens? If you do not know, then we tell you why this happens?

In fact, even after the repo rate is low, banks do not transfer the entire benefit of the reduction, given by the Reserve Bank, to its customers due to its policies. For your information, let you know that in the last three months the repo rate has decreased by 0.5 per cent, but there is no major cut in the rate of interest on your loan. If you pay attention, the Reserve Bank has brought the repo rate to the lowest level (6%) of one year. With the reduction of February and April, the repo rate has reduced by half percent.

If you have a home loan, auto loan or personal loan, and if you have noticed, you will find that your EMIs have not been reduced compared to a reduction in repo rate. There is no significant reduction in interest rates for new borrowers. According to the experts, banks have never provided the full benefit of the reduction of the Reserve Bank to the customers.

In fact, the repo rate is the rate at which banks borrow from the Reserve Bank. When the repo rate is low, the banks get less money from the RBI, due to which customers should also get cheaper loans from the banks, but this does not happen. In the face of competition, the banks worry about income and profit. This is the reason that even after getting cheaper loans from the Reserve Bank, the banks do not give the full benefit to the customers.

For your information, let you know that the RBI had reduced the repo rate by 0.25 per cent in the month of February, after which some banks had cut the interest rates by only 0.05 per cent. According to experts, this deduction is so low that the impact of its deficiency on long-term loans is like nothing.

But whenever the Reserve Bank raises the repo rate, the banks instantly increase the interest rates on the loan faster. But after reducing the repo rate by the Reserve Bank, banks do not immediately cheap the loan for the customers. That is, after the repo rate increase, the banks are not lagging behind in making the loan expensive, but after the repo rate is low, the history of the bank has always been against the interests of the customers.

At the same time, if you are thinking that this time also you will get the benefit of the reduction of repo rate cuts, then your thinking is wrong. Actually, the Reserve Bank has also postponed the arrangements for linking loan rates with External Benchmark from 1st April. After the arrival of this arrangement, customers were expected to benefit from reduction in loan rates.

For your information, let you know that banks now decide the rates of the loan according to the fund's cost. Under this, the rates of loan are fixed through MCLR. Now that the system will continue, customers will have to wait longer to take advantage of reduction in loan rates.