Real estate turned out to be the biggest beneficiary of the Reserve Bank of India's (RBI) aggressive rate cuts and liquidity push through the pandemic, ET Reported, with commercial properties reporting a financing-cost shrinkage of 283 basis points—nearly three times the reduction in official policy rates.
To bring the economy back to pre-COVID levels, the RBI has reduced the policy rates by 115 bps. (One basis point is 0.01%. causing the cost of financing to hit its lowest on record.
The repo rate is basically the interest rate at which the RBI provides overnight liquidity to banks. If it goes up, home loans become expensive. If it goes down, loans get cheaper.
Lower home loan interest rates are always a lucrative proposition for property buyers. Home loan rates, which are now linked to the repo rate, have also fallen to record lows.
On average, the repo rate stayed at 4%, but loans for commercial real estate averaged around 7.14% at the end of February 2022. Likewise, housing loans also saw rates drop by 129 basis points.
Unsecured loans saw rates decline by 218 basis points. Trade and agriculture got the least benefits, at 5 and 64 basis points, respectively.
Under the unsecured category, housing loans saw the biggest relief of 110bps, with interest averaging at 10.39%.
Outstanding loans to the medium and small sectors saw rates drop by 124 bps, while those too large industries fell by 122 bps.
As inflation rises, there may be no room for more cuts. Various banks, like HDFC Bank, State Bank of India (SBI), IndusInd Bank, IDBI Bank, etc., have hiked interest rates on various FD tenures. Rising deposit rates hint at rising loan costs as well.
Kotak Mahindra Bank, too, raised its MCLR by five basis points across all tenors. Its one-year MCLR is now 7.4%. More than 53% of all bank loans are linked to MCLR.