Despite successive rate cuts by RBI the borrowers only received 1/3rd of benefits

The trend watchers of real estate and the financial experts opine that the end users or home loan borrowers have not got the benefits of the interest slashing by the RBI to the extent desired. Although the Reserve Bank of India has slashed the repo rates by 1.5 percentage rates right from January 2015 in successive attempts of percentage cuts in repo rates of the bank but the lending banks have not passed on half of the benefits yet. The borrowers have only received 1/3rd of the benefits. The government wanted to give an impetus on the credit capital of the country and the policies and measures have been to pump in capital and FDI into the economy. The measure of Raghuram Rajan to slash interest rates was mainly to increase the demand and sales of the realty industry. This NDA government also does not have much of an advisory role when it comes to earning of interests by the lending banks. The RBI also has prodded the lending banks to earn interests and the endeavour of the RBI was always for the lending banks to earn more of the share of interests. In this spree the observers say that the slashing of the interest rates have been of only 1/3rd of the amount that has been reduced by the RBI. The Modi government also did not interfere much on the interest earnings by the banks unlike the UPA government.

Looking at this situation there are hints by the RBI that there may be another slashing of the repo rates by the RBI. The governor of RBI also stated in tandem with the current scenario that more importantly the RBI should look into the transmission of the benefits of the past and present rate cuts by the RBI. His motto was to let the end users and the home loan borrowers get the benefit for which these successive rate cuts were intended. The hope from the RBI and the governor Raghuram Rajan is that the lending banks would be more aggressively strategizing for the interest rate cuts from the month of April. The reason is the finance ministry also opted for sharp reduction of the rates on the small saving schemes of the individuals like the Public Provident Fund, Post Office deposits and the like.

The trend watchers opine that in practice the reduction of 60 basis points by the banks or rather the benchmark rate of the top ranking ten banks of India is the maximum that the borrowers have got. The borrowers from the bank have always been complaining of passing the benefits of interest cuts to them especially when the RBI cuts the repo rates steeply like 120 basis points. They feel that only a meager amount is being passed on to the borrowers and the most of it is reaped by the banks. They argue that this benefit at least should be passed on to the senior citizens of India who are in dire need of money.

Such tardy passing on of the benefits of the interest rate cuts by the lending banks of India has made the RBI to wait and watch said a source from the RBI. Because of the prevailing inflationary pressures the RBI has taken this stand of wait and watch before it decides to cut rates further. The RBI is monitoring the situation closely said the sources. The officials further stated that although there are no threats to the overall economy that can be foreseen but the data has been a bit complicated. The data points out that both wholesale and retail price inflation have been showing an upward trend. The food prices are also on the rise. On the other hand the global prices for the crude oil have edged around $ 50 per barrel. These are the concerns which are also being monitored by the central bank of India.  The industrial output also have been a bit volatile and inconsistent and many parts of it are showing sluggish trends says the officials as per the data. The officials said the reporters that these are the factors due to which the central bank is remaining a bit cautious till it decides to slash the repo rates further down.