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Feb 20, 2020 | Blogs | Banking

Your Home And Auto Loans Are Going To Get Cheaper After This Change In RBI Policies

Your Home And Auto Loans Are Going To Get Cheaper After This Change In RBI's Policies

Several national banks like State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda have planned to reduce their MCLR rates. Their decision to change the MCLR rates came after the Reserve bank of India changed its monetary policy on Friday last week. The reduced MCLR rates will ultimately make home loans, auto loans and some other kinds of loans, a little cheaper for customers. 

First, know what exactly is the MCLR rate? The MCLR or marginal cost of funds-based lending rate is the minimum rate of interest on which any bank gives a loan. The MCLR rate is decided by every bank individually as per its boards' internal choice.

After Reserve Bank's policy change, SBI has decided to reduce the marginal cost of funds-based lending rate on its home and vehicle loans. Earlier, the MCLR rate of SBI was 7.90%, but now it is reduced to 7.85%. Right now, SBI is the biggest public sector lender in the country. 

In a press release, SBI stated, "In view of surplus liquidity in the system, SBI realigns its interest rate on Retail Term Deposits (less than Rs 2 Crore) and Bulk Term Deposits (Rs 2 Crore & above) w.e.f. February 10, 2020."

Though SBI has reduced the MCLR rate and fixed deposit rates, it has kept repo rate same as before. But, there are chances that SBI might reduce it later. In its official statement, SBI said, "The impact of recent RBI policy measures and reduction in deposit rates will be reflected in the next review of MCLR."

In its new monetary policy, the Reserve Bank said that it is going to lend money over ₹1 lakh crore for a one and three years period set. Hence, banks are now open to the idea of borrowing money from the Reserve Bank at cheaper rates and lesser government securities and then lending the same money to their customers on cheaper MCLR rates. 

Because of the economic slowdown, the reserve bank is trying to increase money circulation in the economy. In the new policy, it has changed many rules that will facilitate many banks to reduce the minimum amount of extra reserved cash against incremental retail lending. 

The Chief Economic Adviser of SBI group, Soumya Kanti Ghosh, said in an official press release, “The introduction of long-term repo operations (LTRO) for 1yr and 3yr, for total amount of ₹1,00,000 crore at policy repo rate, will bring down cost of funds for banks without effectively cutting deposit rates." 

According to finance world pundits, rates will get reduced again once the economic slowdown gets any better.

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