As banks line up to cut the lending rates on the loans, it is expected that market demand for loans will boast. On the consumer side, it would mean easing of the EMI (repayment) and low cost of the advances. The move is also expected to give a boost to the flagging home loan market.
It was for the third time, since December 31, 2008, that the leading private sector lender, ICICI Bank has lowered the lending rates by 50 basis points. With this, the floating reference rate (FRR) and the benchmark advance rate have come down to 12.75 percent and 15.75 percent respectively.
Chanda Kochhar, managing director, ICICI Bank, said, "The new rate on home loans up to Rs 30 lakh for 20 years will be 9.25%. On loans between Rs 30 lakh and Rs 1 crore, it will be between 9.25% and 9.75% and beyond that it will be between 9.75% and 11%, depending on the creditworthiness of the customers."
Many public sector banks have already reduced the lending rates on the home loans, though centre sees more scope for reduction in the interest rates. Major banks, including SBI, and IDBI have been considering further cut in the interest rates. PNB, which has the lowest lending rate of 11 percent, might not lower the lending rates.
AV Bundellu, deputy managing director (retail), IDBI Bank, said: "A lower inflation rate is out today. Interest rates should come down when there is access to low-cost funds. We have revised the rates twice in May. Now the signals will be the monsoon, inflation, and reforms by the new government."
He added, "We need to see how demand picks up. If there are positive sentiments, we may see things improving by August-September. We are waiting for deposits to grow."
According to industry experts, with the declining rate of deposits, the deposit rates might not lower much. It is also reasoned that banks cannot reduce the deposit rates beyond a certain limit, as money will get diverted into other schemes like the postal savings, NSC, PPF which offers 8-9 percent.