Reserve Bank of India (RBI) Governor Sanjay Malhotra has announced a reduction of 0.25% in the repo rate for the second time this year. After this, it has come down to 6%. Earlier in February, the RBI Governor had reduced the repo rate by 0.25%.This reduction will benefit those who have taken out a home loan on a floating rate. Floating-rate loans are based on the repo rate. Banks adjust the interest rates of floating-rate loans based on changes in the repo rate. It is expected that banks will soon pass on the benefits of the reduction in repo rate to the customers, but many experts say that this will not happen immediately.Often banks give the benefit of repo rate reduction to customers according to the revision cycle of interest rates. This means that banks take some time to update their interest rates. Occasionally this process is slow because banks have to face many other expenses. Such as the cost of raising funds and pressure on profits. For this reason, many banks have not yet given the benefit of the previous repo rate cut to the customers.Arun Puri, chairman of Anarock Group, told a private channel, The decision to reduce the repo rate by 25 basis points (0.25%) was already expected, as inflation is coming down. However, home loan borrowers are unlikely to get any significant or immediate relief in interest rates. Many banks have not already passed on the repo rate cut to the customers, as they are facing the situation of high funding costs, high NPAs, and cautious lending.However, experts say that the repo rate cut will reach the loan borrowers, even if delayed. Low interest rates will make home loans more affordable, which will increase the number of home-buying customers and boost demand in various sectors of the real estate market. If banks pass on the benefit of the repo rate cut to the customers, then the home loan interest rates can go below 8%.According to media reports, currently three government banks—Union Bank of India, Bank of Maharashtra, and Central Bank of India—are offering home loans at an interest rate of 8.1%. After the latest repo rate cut, it may come down to 7.85%. Whereas, the initial interest rates of private banks may come down to 8% because they are currently offering loans at 8.5% and above interest.Talking on this topic, Rohit Somani, a finance analyst at a Big 4 firm, said, “Reduction in repo rate can be beneficial to customers, but if a customer’s credit score is not very good, then they will not be able to take advantage of the reduction in home loan interest rates linked to repo rate reduction by RBI. In order to enjoy the benefits of reduced home loans, customers need to improve their credit scores through timely payment of credit card bills and loans advanced to them. A credit score of above 700 is considered good. These scores are issued by CIBIL and depend on your payment history, credit age, credit mix, etc.”
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