After a long span of 3 years, Reserve Bank Of India (RBI) has finally reduced the short term lending rate i.e repo rate to 8% i.e a reduction of 0.50%. In the annual RBI monetary policy 2012-13 on 17 April 2012, RBI governor D.Subbarao has announced the reduction in repo rate and bank rate by 0.50% keeping Cash reserve Ratio (CRR) unchanged i.e 4.75%. The pre payment penalty on home loan, charged by banks from their loan customers has also been abolished by RBI.
Repo Rate :- Repo rate is the interest rate at which banks in India can borrow funds from central bank(Reserve Bank).
Cash Reserve Rate (CRR) :- Every bank in India has to maintain a percentage of money with the Reserve Bank of India(RBI).
Bank Rate :- Rate at which central bank (RBI) lends money to other banks or financial institutions.
ALSO READ :- RBI : History Of Repo Rate Since March 2010
As we have seen increase in loan interest rates with almost every hike in repo rate, now it is expected that banks will pass this relief to its customer by reducing the lending rates on home loan, auto loan etc.
Key Points Of RBI Monetary Policy 2012-13
- Decrease in repo rate from 8.50% to 8%.
- Decrease in reverse repo rate from 7.50% to 7%.
- Decrease in bank rate from 9.50% to 9%.
- No change in cash reserve ratio (CRR) i.e 4.75%.
- Abolish Pre payment or fore closure penalties on home loan (@floating rate).
- Next mid-quarterly monetary review on June 18, 2012
Reduction in repo rate and abolition of pre-payment charges sounds to be a good news for borrowers. But only if the benefit of this reduction in repo rate will be passed by banks to its customers. As most of banks want to wait for sometime before passing this benefit to their loan customers. Which means loan customers have to pay the same loan EMI on their loan till their bank decides to reduce their loan interest rates. As this reduction in interest will benefit investors on one hand and will reduce the revenues of banks on the other hand.
To maintain there revenues, banks will reduce both deposit as well as lending interest rates.