Those with loans can rejoice, despite RBI not cutting rates. Here’s why

If you have a loan, you can be at ease despite the Reserve Bank of India (RBI) not cutting interest rates. RBI’s step has sent a strong messege to banks to lower rates.

"Banks have reduced the deposits rates and as the effect of this rate cut is seen on the bank's balance sheet, banks will pass on further benefit to borrowers in terms of rate cut", Rakesh Sharma, MD and CEO, Canara Bank said.

The RBI will also announce a new rule for the base rate. The new formula is aimed to speed up the transmission of policy rates to the end users. That means that any future rate deduction would reflect in the bank loan rates sooner.

However, bankers also feel that there is a need for a reliable benchmark for banks to peg their lending rates for transmission to take place smoothly. "We do not have a reliable benchmark except the overnight interbank lending rate. Basing our advances on overnight lending rate would be too volatile and virtually making the rates becoming very uncompetitive when short term rates go up," said V G Kannan, managing director, SBI.

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