RBI cuts rates; home & car loans to be cheaper

TIMES NEWS NETWORK 

Mumbai: Home and auto loans are expected to become cheaper with the Reserve Bank of India cutting interest rates on Tuesday for the first time in three years by a morethan-expected half-a-percentage point aimed at boosting the sagging economy. 
    The RBI, in its annual policy, reduced by 50 bps its repo rate — the rate at which it lends overnight funds to banks — and announced a slew of consumer-friendly measures such as zero-balance savings account for all and abolition of prepayment 
charges for home loans. The availability of cheaper funds is expected to spur individuals to spend more and business to increase investment. This was expectedly cheered by bankers and industrialists. Giving the policy a thumbs-up, the sensex closed 206 points higher at 17,357, buoyed largely by the magnitude of the cuts since it was only expecting a 25-bps reduction. Bonds rallied with the yield on the 10-year benchmark bond falling to 8.34% down from 8.44% on Monday. In the foreign exchange market, the rupee rallied against the dollar to 51.49, up from Monday’s close of 51.68. Though banks agree lending rates need to fall, not all see an immediate decline. 
CONSUMER ACTIVISM, RBI STYLE 
    Borrowers can prepay home loans without forking out foreclosure charges 
    Fixed rate loans may now be a reality. But, some may not want fixed rates when interest rates may fall 
    Banks can no longer get away by paying higher deposit rates to companies. RBI asks for ‘minimal variation’ between individuals & companies 
    Work begins on savings bank account portability, like your cell number, with a unique customer ID 
    Zero-balance accounts 
with minimum facilities to be extended to all customers 
    Getting loan against gold may get tougher. RBI proposes tighter norms and initiates review of business 
    Special thrust on distribution of coins and currency notes, which will now be done through currency chests and bank branches EMIs will dip, but will take time: bankers 
Mumbai: Following the RBI's monetary policy, not all bankers see an immediate decline in lending rates. “With the reduction in interest rates, of course EMIs (equated monthly instalments) will fall that is the good news. But how fast the transmission takes place we will have to watch depending on our cost of funds. 
    But clearly, the trend is downward” said Chanda Kochhar, MD & CEO, ICICI Bank, the country’s largest private bank. 
    The country’s largest bank SBI is, meanwhile, looking at a comprehensive reduction in lending rates. “On car loans and all other loans, wherever the spreads over the base rate (benchmark rate for loans) is high we will look at bringing down rates. I am not sure about base rate but it is our asset liability committee that will take a call,” said Pratip Chaudhuri, chairman, SBI. 
    The policy designed to give growth the much-needed push predicted that the economy would grow at 7.3 % even as it continued to remain concerned about inflation saying it would remain high at 6.5 % in 2012-13. 
    The RBI governor, however, denied that the government had any influence on the move but said the government needs to do its bit to spur growth. 
    “Monetary easing is necessary but not sufficient condition for growth. The government should adjust oil and other subsidies and address supply side constraints,” RBI governor D Subbarao said. 
    Besides addressing rates and setting forecasts for 2012-13, the policy also includes a number of announcements aimed at giving bank customers a better deal. New regulatory initiatives include specialised training to bankers to help them detect fake notes by the RBI, which wants banks to scan every currency note before re-circulating it.