The Reserve Bank of India (RBI) has drastically cut interest rates by 250 basis points since February, 2019. Banks have not extended its full benefit to the customers. Banks have cut the interest rate on home loans by only 1.3% in the last one year. At the same time, there is a deduction of about 1.15% on business loans. Banks have not given full benefits to customers on other loans including cars, personal loans.
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If banks see a reduction in interest on loans by the banks in proportion to the cuts made by RBI, it is very less. The RBI has cut the repo rate by 250 basis points from February 2019 to May 2020. Repo rate is the rate at which banks borrow from RBI. That is, it has become much cheaper for banks to take loans from RBI. At the same time, looking at the deduction made by banks, a year ago, private banks were charging 8.8% interest on home loans, which has now come down to 7.5%.
Double loss by reducing interest on deposit
Banks on one hand did not give the full benefit of the cuts made by the RBI to the customers, on the other hand, by cutting interest rates, they gave double loss to the FD investors. Banks have reduced the interest rates on FDs by 0.52 per cent from February to March 2020. This has caused a lot of loss to investors. At the same time, experts believe that banks will have to reduce the interest rate so that the environment of taking loans in the market can be prepared. A car loan, home loan being cheaper will spin the wheel of the economy.