Home loan interest rates are falling by the day, spurred by the Reserve Bank of India’s attempt towards making loans cheaper and more accessible for customers. This is also leading to a recovery of the real estate sector, particularly in the affordable and mid-income segments, driven by Government incentives and the attractive interest rates.
State Bank of India (SBI) has already cut its rates of interest multiple times this year and the latest cut of 10 basis points was followed by a cut of 15 basis points in the rate of interest at HDFC. This is being implemented from 7th December, 2019, onwards and has brought good cheer to customers ahead of the New Year.
More about the HDFC rate cut
HDFC Bank is the biggest private sector banking entity in the country and has followed SBI’s footsteps in reducing interest rates. It has reduced its MCLR (Marginal Cost Based Lending Rate) by up to 15 basis points or 0.15% for all tenors. SBI had previously slashed interest rates by 10 basis points on the 9th of December, 2019 and HDFC immediately responded with another major rate cut of its own. This will naturally make home loans cheaper for borrowers along with personal loans and all other loans at HDFC Bank.
This will also mean lower EMIs for home loan customers. HDFC Bank has reduced its 1-year MCLR to 8.15% as compared to 8.30% previously. Overnight MCLR has been lowered to 7.8% from 7.95% previously. The interest rate for 1 month is now 7.85% as compared to 8% earlier. The 3 month interest rate come down to 7.9% as compared to 8.05% earlier. The 6 month interest rate has lowered to 8% currently while 2 year tenors will attract an interest rate of 8.25% as compared to 8.4% earlier. The rate of interest for the 3 year tenor will be 8.35% as compared to 8.5% previously.
SBI’s rate cut this month came after the Monetary Policy Meeting (MPC) of the RBI where Governor Shaktikanta Das clearly stated that the RBI was not inclined towards slashing interest rates further after reducing them 5 times in succession.
Why the SBI and HDFC rate cuts are much needed for borrowers
The cut in MCLR across HDFC Bank and SBI will be a much-needed relief for home loan customers and borrowers. The MPC of the RBI has already cut the repo rate by 135 basis points already, taking it down to a whopping 5.15%. A cut in repo rates automatically means lower rates of interest if banks pass on the benefits to home loan customers and borrowers across other retail loan categories. Customers thus benefit from reduced loan EMIs.
However, in spite of the RBI directive to banks to pass on repo rate cut benefits to loan customers, banks have been slow in transmitting the same to their borrowers. As a result, the RBI is now insisting on linking home loans to external benchmarks like the repo rate itself in order to ensure better transmission of loan rates to borrowers. In the meantime, however, a cut in the MCLR across major banks like SBI and HDFC will naturally benefit borrowers who have been repaying EMIs regularly and also prospective home loan customers.