Banks to link interest rate to repo
Equated monthly installments (EMI) on retail loans like home and auto loans are set to become cheaper as banks will now link such rates for fresh loans to the Reserve Bank of India’s (RBI’s) repo rate as announced by Finance Minister Nirmala Sitharaman.
Union Bank of India, which announced the linking of home and auto loan rates to the repo rate, shortly after the Finance Minister’s interaction with the media, said that repo-linked rates will be much cheaper than existing interest rates which are linked to the marginal cost of funds-based lending rate (MCLR).
For example, Union Bank of India’s repo-linked home loan rates for loans above ₹30 lakh up to ₹75 lakh will be 8.25%, which is 35 bps (basis points) lower than the existing rate.
“The home loan linked to repo rate provides 35 bps benefits over the existing home loan,” Union Bank said in a statement.
Similarly, repo rate-linked vehicle loans will be available at 8.6%, which is 40 bps cheaper than the existing vehicle loan rate.
SBI and Syndicate Bank have already linked their home loan rates to the repo rate, while Bank of India, Allahabad Bank and Central Bank of India are expected to come out with similar schemes shortly.
Bankers said, going forward, corporate credit such as term loans and cash credit products would also be linked to external benchmarks like the repo rate.
Courtesy: The Hindu