Housing Finance Interest rates may not fall

rbiBy Accommodation Times News Services

RBI in its regular exercise to control the economy have reduced Repo Rates. 

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

  • reduce the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect;
  • keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL);
  • continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
  • continue with daily variable rate repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 7.75 per cent.

However, housing Finance companies and NBFC engaged in the housing finance business may not reduce it since it is indicative and not an mandate by RBI. In the past when in spite of RBI warning banks and NBFI to reduce interest on home loans, housing financier institutes have been keep it high to make greater profits. Though the Apex bank have relaxed Repo Rates on which banks can borrow from RBI, Banks are rich in funds and own funds and now ECB, can sustain at current level of Housing Finance interest. It is indirectly cartel to not to reduce housing finance interest.

Real Estate Industry though celebrating RBI move, in practice, the advantage may not be passed on to borrowers or even if it is passed , it will be negligible reduction in EMI. Or they will use it for phonic offers, may be for first two to three years for new clients only. 

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