You could be paying lower EMIs soon! RBI to ‘Aam Aadmi’s’ rescue

As the financial year comes to a close, we have some good news for the ‘aam aadmi’ of India. News reports suggest that your EMIs might shrink a little in the coming days as banks across the board are poised to lower lending rates as their hands are being forced by surplus liquidity and low credit demand.

According to the Economic Times report, the country's top banks are considering to lower their interest rates to push credit demand. "With increased government spending, liquidity is likely to be abundant at the beginning of the new fiscal. This would lead to bank base rate cuts in April-June quarter," NS Venkatesh, IDBI Bank's executive director & chief financial officer told the ET.

The lower interest rates won’t only benefit the common man of India but will also lure companies into taking loans. A senior official from the State Bank of India (SBI) told ET that many banks may start cutting rates in the first quarter to lure companies into taking loans.

Apart from the IDBI and the SBI, other government and private banks are also considering rate cuts in the next fiscal. Dena Bank chairman & managing director Ashwani Kumar also confirmed to ET that their lender's asset liability committee would take a decision on rates in April.

So, why are banks considering a rate cut? Perhaps, they making this move because their credits grew just 10.2% year-on-year to Rs 65,24,300 crore as on March 6 while companies have reported a 32% growth over the preceding fiscal and raised Rs 3,56,382 crore in bonds this fiscal?

The RBI has kicked off a benign interest rate cycle by lowering repo rate 50 basis points in two separate phases since January 15, but lenders have so far refused to transmit the monetary policy action to protect margins ahead of the fiscal year-end as the impact of any deposit rate cut comes after a lag.

Kaushik Das, Deutsche Bank vice-president and economist, told ET that interest rate cuts have become an imperative for the banks. He said, "To the extent that inflation is falling, real rates will rise this year unless policy rate cuts are matched by bank rates coming down. With the real economy showing only tentative signs of recovery, and credit growth anemic, it is critical for bank rates to decline, both in nominal and real terms."
Image: indiatimes