ibnlive » Business

Apr 17, 2012 at 10:00pm IST

RBI's unexpected bonanza, EMIs to fall

New Delhi: After three years and 13 consecutive rate hikes, the RBI has finally reversed the gear. In a surprise move, the RBI cut the repo rate - at which it lends to banks - by half a per cent. It is a strong signal to banks to cut interest rates on loans.

Deepak Parekh said, "RBI has bitten the bullet."

The banks admit the signal can't be ignored - EMIs on home, car and personal loans will go down.

State Bank of India MD Diwakar Gupta said, "It will certainly translate into savings for banks and makes it easier for banks to take a view on a rate cut."

If banks pass on even half the cut, it could translate into savings of at least Rs 300 a month.

For example, the EMI on a 20 lakh loan with a 20 year tenure will be lower by Rs 332. A Rs 30 lakh loan over the same tenure saves Rs 500. So it will pay to wait a bit if you're about to go in for a home or car loan.

ING Vysya Bank MD Shailendra Bhandari said, "This is a strong signal to all of us that some rate should be cut sooner rather later."

There's more good news for consumers. All banks have been barred from charging prepayment penalty on home loans.

The only downside to the rate cut will be that the deposit rates will come down as well. So if you're going to open a fixed deposit - do it now.