This Article is From Sep 29, 2015

Raghuram Rajan Surprises with Big Rate Cut; Will Banks Pass on the Benefit?

If banks follow RBI Governor's rate cut, Abhay Parulekar is hopeful it can easily cut his monthly EMI by Rs 1,500.

Mumbai: Reserve Bank of India Governor Raghuram Rajan on Tuesday morning cut the benchmark repo rate by 50 basis points to a four-and-a-half-year low of 6.75 per cent in a surprise move. His remark that it was no Diwali gift may have got a few laughs but that's exactly what many home buyers are hoping for.

Five years ago, IT professional Abhay Parulekar took Rs 35 lakh loan from a private bank for a period of 20 years for his apartment in the central suburbs of Mumbai. When Mr Rajan announced his first rate cut for this year in January, his interest rate was 10.50 per cent and his monthly EMI Rs 35,960. Nine months later, this month, at 10.30 per cent interest, his monthly installment has dropped marginally to Rs 35,275. But if banks follow the RBI Governor's rate cut, Mr Parulekar is hopeful it can easily cut his monthly EMI by approximately Rs 1,500.

"If SBI can reduce rates by 40 basis points then that's the least we expect from our bank. For someone like me that reduction will translate into roughly Rs 20,000 per year and that makes a huge difference," 35-year-old Mr Parulekar told NDTV.

It is the biggest rate cut in four and a half years from the Reserve Bank governor but apart from some public sector banks which have cut rates, others banks are still guarded with their response. Though ICICI chairperson Chanda Kochhar says the rate cut will eventually be transferred to customers, there time frame hasn't been specified for now.

For lakhs of consumers who have seen their Equated Monthly Installments or EMIs increase over the years, the RBI announcement comes with great expectations that just as banks transferred the burden to them, they will also pass on the benefit.
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