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RBI's cautious stance could cost growth, bold rate cuts need of the hour
Given the long lags in monetary policy's impact on the real economy, too much caution could prove unnecessarily costly
Ajay Chhibber
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With consumer price index (CPI)-based inflation dropping to 3.16 per cent in April and likely to fall below 3 per cent in May, is the Reserve Bank of India (RBI) — through its Monetary Policy Committee (MPC) — falling behind the curve again? The RBI has historically been a poor predictor of inflation. It was slow to reduce the repo rate from 6.5 per cent throughout 2024 and has only now started to ease it slowly, with 25 basis point cuts in both February and April. Meanwhile, the real repo rate now stands at an exceedingly high +2.84 percentage points.
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NDTV
26 minutes ago
- NDTV
How Much Will Home Loan EMI Drop After RBI's Repo Rate Cut
New Delhi: If you have a home loan, your EMI is set to reduce by over Rs 1,500 a month thanks to the Reserve Bank of India's latest move. With the central bank cutting the repo rate by 50 basis points -- from 6 per cent to 5.5 per cent -- banks are expected to lower interest rates on loans. For a Rs 50 lakh home loan over 20 years, this could mean monthly savings of Rs 1,569 and annual savings of nearly Rs 19,000, offering much-needed relief to borrowers amid high living costs. The repo rate is the interest rate at which the RBI lends money to commercial banks. A reduction in this rate makes borrowing cheaper for banks, which in turn allows them to offer loans to customers at lower interest rates. This directly impacts borrowers, especially those with home loans linked to repo-based lending rates (RBLR). Let's break this down with a practical example. Suppose you have a home loan of Rs 50 lakh at an interest rate of 8.5 per cent for a tenure of 20 years. Your monthly EMI in this case would be around Rs 43,391. Now, after the 50 basis points cut in the repo rate, if the bank reduces your interest rate to 8 per cent, your new EMI would come down to approximately Rs 41,822. Gaurav Gupta, Secretary of CREDAI (Confederation of Real Estate Developers' Associations of India), welcomed the RBI's monetary decision, saying that the rate cut will help reduce borrowing costs for home buyers. Beyond just lowering monthly payments, it will improve housing affordability across the country. He further added that a drop in interest rates not only benefits individual buyers but also boosts overall sentiment in the real estate sector, which positively impacts multiple industries connected to it. Importantly, it's not just home loans that will get cheaper -- personal loans, auto loans, and other types of retail borrowing will also see reduced EMIs as a result of lower interest rates. (Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
Time of India
an hour ago
- Time of India
Rate cut will slash EMI on Rs 1 crore by around Rs 3,500 per month
This is an AI-generated image, used for representational purposes only. MUMBAI: For home loan borrowers, the RBI's 50 basis point cut in the repo rate to 5.5% brings significant relief, reducing the EMI on a Rs 1 crore loan with a 20-year tenure by around Rs 3,100 per month. Along with the repo cut, the central bank also slashed the cash reserve ratio (CRR) by 100 basis points, releasing Rs 2.5 lakh crore into the banking system. This is expected to reshape deposit rates across the sector. The CRR cut will be implemented in four equal tranches of 25 bps each, starting from the fortnights beginning Sept 6, Oct 4, Nov 1 and Nov 29. As per RBI norms, floating-rate loans must be reset in line with the benchmark repo rate. This means existing borrowers will see an automatic reduction in rates. However, new borrowers may not get the full benefit. Banks are expected to tweak the spread they charge over the repo rate to protect their margins instead of cutting lending rates by the full 50 bps. To preserve profitability, banks are also likely to reduce returns on fixed deposits, especially with fresh liquidity being injected into the system. This could make FDs less attractive to savers. Meanwhile, competition in the home loan segment is intensifying, with smaller lenders offering cheaper rates than market leaders. Among public sector banks, Bank of India, Bank of Maharashtra, Central Bank of India and Union Bank of India are offering the lowest rates at 7.85% for loans up to Rs 30 lakh. Canara Bank, Indian Bank, Indian Overseas Bank and UCO Bank offer 7.90%—with Canara's rate applicable for loans above Rs 75 lakh, and others for loans up to Rs 30 lakh. Among private lenders, South Indian Bank has the lowest rate at 8.30% for loans up to Rs 30 lakh. Karur Vysya Bank follows at 8.45%, while PNB Housing Finance and Tamilnad Mercantile Bank offer 8.50%. Bandhan Bank, Axis Bank and Karnataka Bank offer rates of 8.66%, 8.75% and 8.78%, respectively. In the FD market, NorthEast Small Finance Bank offers the highest return at 9% for a tenure of 18 months and 1–2 days. Among public sector banks, Central Bank of India offers the top rate of 7.5% for a 3,333-day tenure. Bandhan Bank leads private banks (excluding small finance banks) with a 7.75% rate for one year. Among major lenders, HDFC Bank and ICICI Bank offer 6.85% for tenures of 15 to 24 months. SBI and Bank of Baroda offer similar rates through special deposit schemes. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
Time of India
an hour ago
- Time of India
RBI as lender of last resort: A lifeline for NBFCs in crisis
Sunil Kanoria is a Kolkata-based Indian businessman with over 35 years of experience in the infrastructure sector including infrastructure leasing & finance. He had the distinction of serving ASSOCHAM, India's oldest and leading chamber of commerce, as President and has served as Member of the Infrastructure Sector in the 10th Five Year Plan of the Planning Commission of the Government of India. He also served as a Council Member of the Institute of Chartered Accountants of India, nominated by the Government of India. He is the former President of The Agri-Horticultural Society of India. Sunil has been engaged in policy advocacy on matters related to economy. Sunil is a visionary who correctly assessed the Indian economy's infrastructure needs at the beginning of his career and anticipated the imminent role of the private sector in infrastructure creation. With foresight and a knack for taking calculated risks, Sunil converted several pioneering ideas into business reality within the infrastructure domain, many of which were first-of-its kind in India. Focusing on spirituality, Kanoria Foundation has organized confluences with a conglomeration of major issues on Humanity, Power (inner & outer) and Spirituality at Work. Kanoria Foundation organized World Confluences since 2009 which was also attended by former Presidents of India, Late Dr APJ Abdul Kalam and Late Shri Pranab Mukherjee respectively, among other distinguished luminaries from all walks of life globally. LESS ... MORE The Reserve Bank of India (RBI) is reportedly set to redefine its role by preparing to act as a lender of last resort for non-banking financial companies (NBFCs), mutual funds, and microfinance institutions during severe liquidity crises. As reported by the press last week, this move aims to ensure the survival of these entities when they are excluded from lending markets during crises. Given their deep ties to the banking system through borrowings and investments, this step is vital for financial stability. The RBI's economic capital framework (ECF) committee recently raised the contingency risk buffer (CRB) band, indicating readiness to intervene in crises. While post-pandemic asset purchases focused on public assets, the RBI is now considering private asset purchases in future crises. This policy shift acknowledges that NBFCs and other regulated entities are as critical to financial stability as banks. Over the past two decades, the RBI has tightened NBFC oversight, aligning it with banking regulations. Extending the lender-of-last-resort function to these institutions is a logical next step. However, this initiative is overdue. Past crises have exposed NBFCs' vulnerabilities. For example, during the 2018 liquidity crunch, infrastructure finance companies faced a severe asset-liability mismatch, worsened by the RBI's COVID-19 moratorium guidelines in 2020. While borrowers received relief, NBFCs were pressured by creditors, leading to bankruptcy proceedings. Timely liquidity support could have averted such outcomes, stabilizing similar institutions and reducing risks to the financial sector. Globally, central banks have long supported non-bank institutions during crises. In the United States, the Federal Reserve has been instrumental in stabilizing NBFCs and mutual funds. During the 2008 financial crisis, the Fed's Commercial Paper Funding Facility (CPFF) provided liquidity to money market mutual funds and other non-bank entities facing funding shortages. In 2020, the Money Market Mutual Fund Liquidity Facility (MMLF) enabled institutions to purchase assets from money market funds, preventing a collapse in short-term funding markets. These actions highlight the critical role central banks play in supporting non-bank entities to maintain financial stability. In Europe, the European Central Bank (ECB) has similarly supported NBFCs during crises. In 2020, the ECB expanded asset purchase programs and offered targeted longer-term refinancing operations (TLTROs) to indirectly ensure liquidity for non-bank institutions through banks. The Bank of England's COVID Corporate Financing Facility (CCFF) also supported large non-bank firms by purchasing commercial paper, ensuring operational continuity during market disruptions. These global examples demonstrate the effectiveness of central banks extending their lender-of-last-resort function beyond banks. The RBI's proposed framework aligns India with these global practices. By acting as a lender of last resort, the RBI can prevent systemic shocks from liquidity freezes in NBFCs or mutual funds. Their interconnectedness with banks means their failure could trigger a domino effect, threatening the financial ecosystem. Past crises affecting infrastructure finance companies underscore the consequences of inaction. Had this mechanism been in place earlier, significant disruptions might have been avoided. Yet, the RBI must proceed cautiously. Extending this role requires clear guidelines to prevent moral hazard, where NBFCs might take excessive risks expecting bailouts. The RBI should establish strict eligibility criteria and robust oversight to ensure only well- managed institutions facing temporary liquidity issues receive support. It must also balance interventions to avoid crowding out private market solutions, which could stifle innovation and competition. The RBI's move to become a lender of last resort for NBFCs, mutual funds, and microfinance institutions is a forward-thinking step. It addresses a critical gap in India's financial safety net, aligning with practices of global central banks like the Federal Reserve and ECB. While commendable, its success depends on precise implementation to ensure stability without encouraging reckless behaviour. Had this framework been introduced earlier, the financial sector might have been spared some amount of distress. The RBI's proactive stance promises a more resilient financial system for India. Facebook Twitter Linkedin Email Disclaimer Views expressed above are the author's own.
