RBI cuts rates; banks to go for festive offers

Get ready for some festive offers from banks after the Reserve Bank of India (RBI) lowered the rate at which it lends to banks (called repo rate in banking parlance). The lowering of rate will soften the cost of funds of banks, which is expected to be passed on as lower lending rates to borrowers.

While most bank chiefs refrained from commenting whether they are slashing lending rates anytime soon, analysts say that everyone is waiting to see the impact on their cost and that they would sooner or later be forced to cut rates to attract customers, if industrial credit fails to pick up.

RBI governor Urjit Patel said, “Banks have been selective in their rate cuts in aggressive segments such as home and auto loans, but there are many other segments, especially those where borrowers are still tied to the base rate, where they can do more. I think there is scope for banks to reduce lending rate for those segments. So far, they have not benefited to the full extent of our policy rate cuts.”

After the 0.25% cut in the repo rate to 6%, the cost of funds for the banking system is expected to come down further. Home …read more