EMIs to Drop as 5 PSU Banks Cut Lending Rates Following RBI Repo Rate Reduction

The Reserve Bank of India (RBI) has recently reduced the repo rate, and in response, five public sector unit (PSU) banks have announced cuts in their lending rates. This reduction in lending rates is expected to bring down equated monthly installments (EMIs) for borrowers, offering financial relief during a period of economic recovery.

The five PSU banks that have adjusted their lending rates include State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, and Union Bank of India. These banks have reduced their marginal cost of funds-based lending rate (MCLR) by 10-20 basis points (bps), effective immediately.

The repo rate, which is the rate at which the RBI lends to commercial banks, was cut by 40 basis points in May 2023. This reduction was aimed at boosting liquidity and stimulating economic growth. By lowering the repo rate, the RBI hoped to encourage banks to pass on the benefits to borrowers in the form of lower lending rates.

The reduction in lending rates is expected to have a significant impact on borrowers, particularly those with floating-rate loans. For instance, a borrower with a home loan of Rs. 50 lakh at an interest rate of 7.5% will see a reduction in their EMI by approximately Rs. 2,000 per year if the rate is cut by 10 basis points. This can provide much-needed financial relief and increase disposable income for households.

Commercial banks have been under pressure to pass on the benefits of the repo rate cut to borrowers. The RBI has been urging banks to reduce their lending rates to stimulate borrowing and investment. The reduction in MCLR by the five PSU banks is a step in the right direction and is expected to boost consumer confidence and spending.

While the reduction in lending rates is a positive move for borrowers, it is important to note that the impact may vary depending on the type of loan and the individual bank's policies. Borrowers with fixed-rate loans, for example, will not benefit from the reduction in lending rates.

The reduction in lending rates is also expected to have a positive impact on the real estate sector. Lower EMIs can make home loans more affordable, which could lead to increased demand for property. This, in turn, could help revive the real estate market, which has been facing challenges due to high interest rates and economic uncertainty.

In addition to the real estate sector, other sectors such as auto and consumer durables are also likely to benefit from the reduction in lending rates. Lower financing costs can make it more attractive for consumers to purchase cars, motorcycles, and other high-value items, thereby boosting sales and economic activity.

The move by the RBI and the PSU banks to reduce lending rates is a welcome step in the context of the current economic environment. It is expected to provide much-needed support to borrowers and stimulate economic growth. However, it is important for borrowers to carefully evaluate their financial situation and consult with financial advisors to make informed decisions about their loans and investments.

Despite the positive impact of the reduction in lending rates, it is essential to monitor the overall economic conditions and the effectiveness of these measures in achieving the desired outcomes. The RBI and the government will likely continue to implement policies to support economic recovery and ensure sustainable growth.