The cut in CRR and the repo rate is good news for borrowers, especially housing loan customers. A look by BALAJI RAO.
The RBI Governor is still not happy about the inflation levels, and feels this is not a comfortable time to announce key rate reductions. But the RBI has not completely disappointed the market. It has cut the CRR and the repo rate that will ease the liquidity crunch in the banking system.
The RBI continues to make more funds available to the banks, only touching upon the CRR and repo so that lending activity will improve and banks can access cheaper funds while borrowing from the RBI.
The repo rate has been reduced from eight per cent to 7.75 and the CRR stands reduced to four from 4.25 per cent.
The reduction in CRR brings in huge liquidity to the banks. This can be used to lend at cheaper cost which is good news for borrowers, especially housing loan customers.
Repo is a term used in financial markets where the banks are allowed to borrow from the RBI when they face a shortage of funds. A reduction in the repo rate means banks can borrow funds at a cheaper cost and pass on such benefits to borrowers.
The CRR is a portion of the deposits that banks will have to compulsorily park with the RBI. This cannot be used for lending and also does not get any returns.
The CRR also is a measure by RBI to tighten liquidity with the banks which the banks otherwise would have used to lend.
Soon after the RBI’s policy announcement on January 29, most banks decided to pass on the benefits to customers. The biggest beneficiaries will be home loan customers who can now get their loans at cheaper rates.
The sector gains
Most realtors have expressed their happiness with the easing of the CRR which they feel will allow banks to lend without restraint, while the pace of home purchase would increase, and that would in turn help them in sales.
Even the reduction in Repo rate is good news for the real estate sector since the borrowers will be enthused to take loans that will now be available at cheaper rates.
Despite the key lending rates not being reduced, the overall feel-good factor seems to have come back for the banks, real estate sector and the home loan customers and the buoyancy wiill be more palpable in the coming days ahead of the RBI’s next policy announcement due in the first quarter of 2013-14.
You can now get home loans at cheaper rates
The pace of home purchases is set increase