Analysts expect cut in loan rates

Home loan rates are heading towards south. On Tuesday the Reserve Bank of India’s (RBI’s) credit policy and it is expected to cut the rates at which it lends money to banks, which in turn will pass on the benefit to those who have taken home or personal loans from them.
Analysts are of view the banks will be cutting loan rates even if the RBI does not cut its rates immediately but simply hints at it in the near future.

While industry watchers expect the RBI to take a cue from the US Federal Reserve, which had cut rates by 0.75 per cent to keep at bay the slump. They are expecting the RBI to shave 0.25 per cent off its rates. “The RBI is also expected to keep steady the cash reserve ratio — the percentage of deposits banks are expected to keep in reserve — at 7.5 per cent,” said A. Prasanna of ICICI Securities.

At the moment banks are flushing with cash, which is another reason why analysts are certain about the fall on loan rates. According to RBI data so far this fiscal credit growth was at 22.2 per cent, compared to 31.9 per cent last year, while deposit growth rose to 23 per cent from 21.5 per cent.

Sachchidanand Shukla, economist at Enam Securities, said: “The other indicator is that leading lenders like ICICI and HDFC have extended their Diwali offers on loans up to January-end. They could not cut them earlier because of the fear of a cash reserve ratio hike.”

So, what can stop the RBI from cutting rates? Mainly, it is the fear that it can be interpreted as a departure from the discipline of a tight monetary policy over the last four years, which has served the economy well.

“So, even if the RBI does not cut rates right away, the trend points to cuts soon enough,” said D.K. Joshi, director and principal economist at industry rating agency CRISIL.