Spoiler Alert: Know why RBI’s repo rate cut will not impact your home, auto loan EMIs

The Reserve bank of India has slashed the repo rates by 25 basis points. And no doubt that banks have followed suit. But can we expect our EMIs to come down in real sense, so much so that our month-end savings see a considerable increase?

“No. The base rate cuts by the banks are just for the sake of it. They will not reduce the rate of interest substantially since banks have their own economics,” said CH Venkatchalam, general secretary of All India Bank Employee Association.

He added that if the banks reduce the rate of interest on loans by a considerable basis points, it will severely impact the fundamentals of the banks. “If they reduce the interest rates on credit, it will be at the cost interest offered on deposits to the consumers,” explained Venkatchalam.

Naveen Kukreja, managing director of Paisa Bazaar, an online credit comparison website and subsidiary of Policy Bazaar, too shared a similar sentiment. He said that the banks are expected to slash rates most by 15 basis points to 20 basis points. “ In our discussions with the banks, we came to know most major banks will not cut rates immediately and will wait to see how things pan out in the future,” noted Kukreja.

Venkatachalam attributed the reluctance to cut interest rates to the weak financials of the banks in the past few years. It should be noted that in the last few years, the provisions for Non Performing Assets (NPAs) have been consistently increasing. Most banks have converted their NPAs into Corporate Debt Restructuring (CDRs) in a bid to hide their rising numbers of NPAs.

However, banks such as Allahabad Bank and the country’s largest state-run bank State Bank of India have cut their interest rates by 30 bps and 15 bps respectively. “If SBI and HDFC bank slash rates, other banks will also emulate because of competition. Public sector banks are expected to cut rates while we will have to watch out for any such signal from private sector banks,” explained Kukreja.

Interestingly, it seems difficult for the apex bank to slash rates in the future after it downgraded monsoon forecast. It should be noted that in recent times, the crude oil prices to have gone up. While untimely monsoon have damaged crop production across the country, El Nino effect on the monsoon this year could result in retail prices of food commodities to spike considerably, which in turn could result in inflation surging.