New Delhi: As RBI has signalled an end of soft interest rate regime, the State Bank of India is considering to withdraw its special home and car
loan schemes, carrying an interest rate of 8% for the first year of repayment period of loan. SBI's current special scheme will expire on November 7. A senior SBI official said the bank will take a final view within this week. Other PSU banks are also considering to withdraw special schemes, announced to revive the demand for houses and cars in Q1 of 2009, when the country was facing one of the worst economic slowdown in the last five years. To counter slowdown, RBI had also announced a number of measures to infuse liquidity, leading to fall in interest rates. The measures helped in putting the economy back on revival path. Since inflationary pressure is also mounting, RBI governor D Subbarao, while unveiling review of monetary policy, said central bank's main focus will be on checking inflation and for this monetary policy could be tightened. But this gave a signal to bankers that interest rates are likely to go up, prompting them to consider to withdraw offering loans at lower rates under special schemes. The apprehension is RBI may increase CRR — the proportion of deposits that banks need to keep with central bank —by half a percentage points to 5.5%, sooner or later, to mop up excess liquidity from system. Bankers say special schemes were launched in February to attract new borrowers to kick-start economic revival. At that time banks were saddled with old deposits at high interest rates, making cost of fund high. If banks had cut the enchmark rates, interest rates on existing loans would have come down, making yield from loan lower than cost of fund. So, to insulate overall yields on loans, banks announced schemes at lower rates, without cutting benchmark rate. Over a period of time, high cost deposits have been re-priced at lower rates, lowering overall cost of fund. This enabled banks to cut benchmark rates. When SBI had announced its special schemes in February, its benchmark rate was around 13.25% and home loan at around 12%. Now, PLR has declined to 11.75% and home loan at 9.25%-10%. Even if special schemes are withdrawn, there would not be much escalation in the overall cost of borrowing, a senior banker said.
loan schemes, carrying an interest rate of 8% for the first year of repayment period of loan. SBI's current special scheme will expire on November 7. A senior SBI official said the bank will take a final view within this week. Other PSU banks are also considering to withdraw special schemes, announced to revive the demand for houses and cars in Q1 of 2009, when the country was facing one of the worst economic slowdown in the last five years. To counter slowdown, RBI had also announced a number of measures to infuse liquidity, leading to fall in interest rates. The measures helped in putting the economy back on revival path. Since inflationary pressure is also mounting, RBI governor D Subbarao, while unveiling review of monetary policy, said central bank's main focus will be on checking inflation and for this monetary policy could be tightened. But this gave a signal to bankers that interest rates are likely to go up, prompting them to consider to withdraw offering loans at lower rates under special schemes. The apprehension is RBI may increase CRR — the proportion of deposits that banks need to keep with central bank —by half a percentage points to 5.5%, sooner or later, to mop up excess liquidity from system. Bankers say special schemes were launched in February to attract new borrowers to kick-start economic revival. At that time banks were saddled with old deposits at high interest rates, making cost of fund high. If banks had cut the enchmark rates, interest rates on existing loans would have come down, making yield from loan lower than cost of fund. So, to insulate overall yields on loans, banks announced schemes at lower rates, without cutting benchmark rate. Over a period of time, high cost deposits have been re-priced at lower rates, lowering overall cost of fund. This enabled banks to cut benchmark rates. When SBI had announced its special schemes in February, its benchmark rate was around 13.25% and home loan at around 12%. Now, PLR has declined to 11.75% and home loan at 9.25%-10%. Even if special schemes are withdrawn, there would not be much escalation in the overall cost of borrowing, a senior banker said.
POSTED BY:
ASHWANI SUHALKA PGDM 2nd Yr
Just admiring your work and wondering how you managed this blog so well. It’s so remarkable that I can't afford to not go through this valuable information whenever I surf the internet! slick cash loan
ReplyDelete