Home Loan: The Monetary Policy Committee of RBI has today reduced the repo rate by 25 basis points to 5.25 percent, due to which the home loan rates are expected to fall drastically. It is being told that home loan rates will come down to the level before the Global Financial Crisis in 2008.
Already many banks like Union Bank, Bank of India, Bank of Maharashtra and Indian Overseas Bank are currently offering home loans at 7.35 percent. Due to reduction in repo rate the interest rate will reduce to 7.1 percent. Accordingly, with a rate reduction of 0.25 points on a home loan of Rs 1 crore for 15 years, the EMI will be reduced by approximately Rs 1,440 per month.
Deposit rates will have to be cut
Bankers say that to bring down the home loan price to 7.1% for new borrowers, lenders will have to drastically cut deposit rates or change the spread on the benchmark rate. If this happens, new borrowers may have to pay higher interest than existing floating-rate borrowers.
Unless deposit rates come down, banks’ net interest margins will decline, while non-banking finance companies will benefit immediately from lower funding costs. “This policy is a big help for the NBFC sector and especially for last-mile financiers like Shriram Finance. The continued neutral stance, along with the announcement of buying OMOs worth Rs 1 lakh crore, ensures that liquidity remains good.
What is the opinion of experts?
Ankur Jalan, CEO of Golden Growth Fund, says that from the depositors’ point of view, the 25bps cut in repo rate will raise concerns about declining returns on fixed deposits and other interest-bearing savings. Additionally, this may force banks to reduce deposit rates in the coming months, making it difficult for savers to earn good returns. While low rates can largely support economic growth, wealthy investors and family offices often redirect capital to higher return products like real estate-focused Category II AIFs to maintain real yields, adding to the fundraising momentum for these funds. The low interest rate environment also reduces the cost of capital for developers and strengthens project viability, which in turn increases opportunities for AIFs.
Preksha Singh, CEO of Agrasheel Infratech, said that India’s real estate market has already become a center of attraction for global investors and the NRI community. Now with the reduction in interest rates, investment will become even more profitable. Stable economy, growing demand and low EMIs together will make India the best investment destination in the next few quarters.
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