In a move that will cheer up customers, many prominent banks have linked their loan products to the Reserve Bank of India’s repo rate.
Bank of Baroda, Bank of India, Syndicate Bank and Allahabad Bank followed their counterpart State Bank of India, which was the first one to launch a repo rate-linked loan product.
Indian Bank will also launch a scheme from August 15 that will link home and vehicle loan with the repo rate. Union Bank and Allahabad Bank also said that they will follow their counterparts and are working on launching similar products.
The Reserve Bank of India in its monetary policy review last week reduced the repo rate by 35 basis points, bringing it down to a 9-year low of 5.40%. The repo rate is the rate at which RBI lends to commercial banks, thereby providing the basis for deposit and loan interest rates in the country.
The Bank of Baroda is the latest bank to make launch the repo rate-linked loan product. The move to link the repo rate to home loan may see faster transmission of interest rate cut benefits to customers.
So customers now looking for a home loan can contemplate both MCLR-linked home loan rates as well as repo rate-linked home loan rates. While MCLR-linked loans come with fixed interest rate reset dates, loans linked with repo rates will be benchmarked to the Repo-Linked Lending Rate (RLLR).
In case a borrower chooses a repo rate-linked home loan, it may reduce his wait time for receiving RBI-mandated rate cuts, as the lowering of the repo rate will automatically reduce the RLLR, which will result in lowering the loan interest rate.
On the flip side, a rise in repo rate would make home loans dearer. So any kind of change in the repo rate will have a direct impact on your home loans interest rates.