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Union FM announces action plan for cheaper home, auto loans


Union FM announces action plan for cheaper home, auto loans

In order to reinvigorate the economy of the country and shore up market sentiment, Finance Minister Nirmala Sitharaman has announced a new course of action which includes a cut in the lending rates for borrowers. She said that the repo rate is being cut down every quarter by the Reserve Bank of India but the consumer banks are not passing the benefits of any rate cut to the borrowers swiftly.

The banks have now consented to allow this benefit. The EMIs of car and home loans will be made cheaper as the repo rates will be directly linked to the interest rates. The Finance Minister also stated that the main purpose is the scaling down of interest rates of auto and housing loans. Also, a higher surcharge on gains from equity will be withdrawn both for domestic investors as well as for foreign investors. Methods to improve and uplift the auto sector have also been announced by the Union Finance Minister.

Further, for the sake of capitalization of the public sector or PSU banks, she also declared immediate deliverance of a sum of Rs. 70,000 crore.  A person earning over Rs. 2 crore is subjected to higher surcharge as declared by the government in the Budget for this year. Investors with foreign portfolios, who are functioning as trusts, are also entitled to a higher surcharge. These are decisions that have come under immense scrutiny in recent times.

Key announcements by the Union FM

The ten most important declarations by the Finance Minister is as follows

  1. Increased surcharge on long term or short term capital gains which emerges due to transfer of equity shares will be removed by the government. This will be relevant for both domestic investors and foreign investors.This announcement has been appreciated by experts as it will bring much solace to the Foreign Portfolio Investors as they have been hoping for. The equity markets will also be promoted due to this. However, capital gains from interests or debt instruments would perhaps still be entitled to a surcharge.
  2. The finance minister announced that a centralized computer system will be used to issue all the orders, notices and summons furnished by the Income Tax Department on or after October 1. Decisions on old notices will also be taken by October 1 otherwise they would be uploaded again by employing the new system.
  3. The finance minister announced that in order to hand out the advantages of RBI’s repo rate cuts to borrowers, timely rate cuts have also been agreed upon by banks. Marginal Cost of Funds based Lending Rates will also be reduced by the banks so that all borrowers can gain advantages from the same.  The repo rate has been cut by 110 basis points by The Reserve Bank of India from the beginning of this year.
  4. Repo rates or external benchmark linked loan products will also be introduced by the banks. The repo rates of RBI will be directly linked to the rates of auto loans or home loans by this method. State Bank of India and Bank of Baroda have already initiated repo linked products and customers are responding positively to the repo linked home loan products. It is however up to the customers to choose either the new product or the MCLR linked home loan.
  5. To implement more organizational efficiency and effectiveness, loan documents will have to be returned within 15 days of loan closure by the public sector banks as announced by the Finance Minister.
  6. All the vehicles that will be purchased till March 31, 2020, will have an additional 15 percent reduction in their cost. Business establishments that buy new vehicles will also gain from this scheme.
  7. All the BS-IV vehicles that are acquired till March 31, 2020, will continue to remain in action till their complete tenure of registration.
  8. The housing finance companies (HFCs) will also receive additional liquidity support of Rs. 20,000 crore from the National Housing Bank as announced by the Finance Minister.
  9. The auto sector is struggling in the present market. The government announced that on purchases of new vehicles till June 2020, revision of one-time registration fee will be postponed. This may help to encourage and promote the auto sector.
  10. The finance minister also announced that registration will continue for both internal combustion vehicles and electric vehicles.

As can be seen, a slew of measures has been taken to enable more liquidity in the system, encourage customers to invest in real estate through cheaper home loans and also consolidate banks and the auto sector simultaneously. The impact of these recent announcements is expected to be highly positive indeed.

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