Latest news with #JoydeepSen
Mint
22-06-2025
- Business
- Mint
RBI's rate cut may not bring immediate EMI relief for all borrowers
The Reserve Bank of India (RBI) has cut the repo rate by 50 basis points (bps) and the cash reserve ratio (CRR) by 100 bps, raising hopes among borrowers of lower EMIs. But rate cuts by the central bank don't automatically translate into immediate relief for all loan categories. The actual transmission, whether faster, slower, or none at all, will depend on multiple factors, including the type of loan, when it was taken, the lending institution, and the benchmark it is linked to. Fixed or floating: the nature of your loan matters Certain loan categories — particularly personal loans and credit card debt — are typically offered at fixed interest rates. The rate set at the time of disbursement remains unchanged through the tenure of the loan, regardless of RBI's policy moves. Read this | Mint Explainer: RBI cuts repo rate by 50 bps. How will it impact lenders and borrowers? 'Most lenders offer loans in these categories as fixed-rate loans. Then there are categories, which are more of a mixed bag. For example, loans such as car loans and loans against securities," said Adhil Shetty, chief executive officer of BankBazaar. To be sure, some public sector banks even offer personal loans with a floating rate option. When it comes to car loans or loans against securities, the interest rate may be fixed or floating. If floating, these are linked either to internal or external benchmarks set by the banks. Since 1 October 2019, all new floating-rate loans must be linked to external benchmarks. However, older loans are often tied to internal benchmarks. According to RBI's Annual Report 2024-25, 35.9% of floating-rate loans are still linked to the marginal cost of funds-based lending rate (MCLR), an internal this: How you can get a loan against an insurance policy Home loans are predominantly floating-rate products, while fixed-rate options are also available. Borrowers who took home loans after October 2019 are generally linked to external benchmarks, while older loans may still be tied to MCLR. This distinction is crucial in determining how quickly borrowers benefit from the RBI's latest repo cut. MCLR vs EBLR: how your benchmark affects transmission For loans linked to MCLR, the transmission is typically delayed due to reset cycles, which may occur annually or half-yearly depending on the bank. Even though the RBI provides the formula for calculating MCLR, banks apply their own internal cost structures to arrive at their minimum lending rates. 'While the formula for calculating MCLR is given by the RBI, it is an internal benchmark, which means it will vary across banks. Banks will use their internal costs and calculation of risks to decide their minimum lending rate under MCLR framework. The variables include cost of funds for the banks (deposits), other borrowings, return on net worth, operating costs, tenor premium (longer loan tenor would mean higher risk premium) and negative carry from RBI's cash reserve ratio," explained Joydeep Sen, corporate trainer and author. The CRR, the percentage of deposits banks are required to maintain with the RBI, results in negative carry because these funds typically earn lower returns. Banks are allowed to factor this into their MCLR calculations. By contrast, loans under the external benchmark lending rate (EBLR) regime, most commonly linked to RBI's repo rate, usually see faster transmission. The repo-linked lending rate (RLLR) adjusts more swiftly, typically on a quarterly reset this: How you can get loan against mutual funds without breaking it As the repo-linked lending rate (RLLR) is directly linked to RBI's repo rate, it will usually lead to full quantum of repo cut getting passed onto the borrowers and the transmission is likely to happen faster as the EBLR framework follows quarterly reset cycle. NBFC loans: more flexibility, less transmission certainty For borrowers with loans from non-bank financial companies (NBFCs), the picture is more complex. While NBFCs are regulated by RBI, they are not mandated to follow the benchmark frameworks applicable to banks. 'NBFCs have their internal models to determine their base rates. These rates are influenced by factors such as cost of funds, overhead costs and asset-liability mismatches," pointed out Jagadeesh Mohan, founder of EMI Saver and former PhonePe executive. For NBFCs, assets are the loans they have extended, and liabilities are funds borrowed from banks, debt markets, or depositors. Asset-liability mismatches occur when most borrowings are of short tenure, while loans extended have longer tenures. Also read: How stock market investors can use liquid ETFs to manage cash Additionally, NBFCs can set their own reset frequencies. Existing borrowers may not necessarily benefit from RBI's repo cut, or the impact may be limited depending on the lender's funding costs, competition, and business strategy. 'NBFCs with better credit ratings might be better placed to pass on the benefits of RBI's repo cut due to the lower cost of raising funds on account of their credit rating and better access to funds through their distribution channel," said Abhishek Kumar, a registered investment advisor and founder of SahajMoney.
Mint
10-06-2025
- Business
- Mint
Don't miss your opportunity to lock-in high fixed deposit rates
MUMBAI : If you are planning to deposit your money into a bank fixed deposit (FD) don't delay any further. With the Reserve Bank of India (RBI) cutting the repo rate, banks are likely to cut fixed deposit (FD) rates further to protect their margins. But still there is a small window of opportunity to lock in prevailing FD interest rates, before they are re-adjusted. On 6 June, the RBI in a surprise move cut the repo rate by 50 basis points (bps) after a 25bps cut in previous monetary policy. The central bank also cut cash reserve ratio (CRR) by 100bps. A basis point is one-hundredth of a percentage point. Also Read: Voluntary Provident Fund offers high interest rates. But withdrawals are a pain. CRR is the percentage of a bank's deposits that it must keep with the central bank in the form of cash. Repo rate is the interest rate at which commercial banks borrow money from the central bank. Window of opportunity 'There is a brief opportunity window for investors to lock in the higher FD rates at this point, before they potentially see a downfall. In the current economic situation, locking in current rates can turn out to be a strategic move. Any future change in repo rates by the RBI will depend on several factors, like inflation trends, economic growth, and financial global conditions, which may take some time to stabilize," said Raj Khosla, founder and managing director of 'Banks have already been reducing rates for past few months following the RBI's last rate cut, but investors can take advantage of prevailing rates, before they drop any further," said Joydeep Sen, a corporate trainer (financial markets) and author. Also Read: With interest rates expected to ease, these tax-efficient funds may be just right for you Some banks have already reduced interest rates on savings accounts to reduce the stress on margins. Also, banks have redued FD rates in the range of 30-70bps since February 2025, according to a research report, Ecowrap by State Bank of India (SBI). "Transmission to deposits rates is expected to be strong in the coming quarters with further rate cut in deposits expected from banks," it added. 'For depositors, a 50 bps repo rate cut may not slash FD rates overnight, but it does signal the beginning of a downward trend. Banks are likely to start trimming deposit rates, especially for short- and medium-term tenures. If you've been waiting to lock in current rates, some of which still hover around 7.5%, now may be the time. Senior citizens, who enjoy an extra 25-50bps, should consider locking in longer tenures," said Adhil Shetty, chief executive of Also Read: Monetary policy: We live in interesting times for interest rates
