M A I N   N E W S

Cheaper loans soon as RBI cuts rate
Sanjeev Sharma/TNS

New Delhi, April 17
Home and auto loan EMIs will become cheaper after a three-year wait as the Reserve Bank of India (RBI) carried out a surprisingly higher interest rate cut of 50 basis points to give a boost to faltering growth in the economy.

The RBI, however, left the cash reserve ratio (CRR), the share of deposits that banks must hold with it, unchanged at 4.75 per cent.

The cut in the benchmark repo rate to 8 per cent by 50 basis points was higher than the consensus estimate of 25 basis points. RBI Governor D Subbarao in the monetary policy review, however, capped the future expectations of more cuts to follow by saying that there is limited scope since inflation still remains a challenge.

The RBI after a long battle with inflation has now shifted the focus to boosting growth which had become a casualty due to high interest rates. The RBI raised rates 13 times between March 2010 and October 2011 to tackle inflationary pressures.

Subbarao said the repo rate cut is due to a fall in growth rates and moderation in inflation. The RBI has pegged the GDP growth rate for 2012-13 at 7.3 per cent and the inflation target at 6.5 per cent. Some analysts said the GDP estimate might be optimistic. For this year, it is expected to be 6.9 per cent.

In another relief for retail borrowers, the RBI also announced that banks should not charge prepayment penalties from home loan borrowers.

For home loan borrowers, the cut in repo rates implies that for a Rs 10 lakh loan for 15 years, the equated monthly instalment (EMI) calculated at 10.5 per cent will come down from Rs 11,054 to Rs 10,757, a gain of Rs 297. Over the full tenure of the loan, it translates into savings of Rs 50,823.

Finance Minister Pranab Mukherjee said the rate cut would boost growth outlook which had weakened in these past months. The monetary policy announcement should help in investment revival and contribute to strengthening of business sentiments, he said.

Banks like the SBI, HDFC, ICICI, ING Vysya, indicated that the rate cuts would be passed on to consumers. Chanda Kochhar, Managing Director & CEO, ICICI Bank, said these measures coupled with the significant improvement in systemic liquidity in recent weeks should give banks the confidence to bring down wholesale deposit rates, which in turn would reflect in a reduction in lending rates. This would ease the interest costs of the corporate sector, as also give a boost to retail demand, she said.

The move also cheered industry which has facing a slowing investment scenario and low industrial output. V Ashok , Group CFO, Essar group, said the move will spur growth and investments but said inflationary pressures have still not abated and it is unlikely that this could herald further rate cuts in the future.

Stock markets cheered the move with the surprise cut taking the BSE Sensex higher by 206 points to 17357 points. Interest rate sensitive sectors like real estate, auto and consumer durables stand to gain with lower rates boosting demand.

Indranil Pan, chief economist, Kotak Mahindra Bank, said there was a sense of urgency in a front-loaded surprise. The RBI’s surprise repo rate cut of 50 bps (along with the tone of the communiqué) seemed to indicate a sense of urgency as it reduced expectations of further large cuts.

(With inputs from Shiv Kumar in Mumbai)

IMF lowers India’s growth projection

The International Monetary Fund has marginally lowered India's economic growth forecast to 6.9 per cent in 2012, from 7 per cent projected earlier, on weak global and domestic demand. The world economic growth rate would slump to 3.5 per cent from 3.9 per cent, it said.

Oil cos threaten steep hike

Public sector oil companies, including Indian Oil Corporation, on Tuesday went public with an ultimatum of sorts that it will raise petrol prices by more than `9 a litre unless the government either compensates petrol losses or cuts central excise and state taxes.