With RBI slashing down interest rate, the property buyers are preferring floating interest rate. However, some are in dilemma over choosing what type of interest rate. Some argue that after few quarters, RBI may again hike bank or repo rates. This is however subject to the gross domestic product (GDP) numbers. The banking regulator Reserve Bank of India (RBI) Monetary Policy Committee (MPC) quarterly meeting is scheduled for December 3-5, 2019. If RBI reduces repo rate further, then interest rates of eight banks on home loans may drop below eight per cent.
Let's take a look what happened in the previous quarters. RBI in its October meet reduced rate by 25 basis points (100bps=1 per cent). After this, the repo rate, regulator's lending rate to banks, is at 5.15 per cent. RBI reduced repo rate for the fifth consecutive quarter as the regulator slashed the rate by 135 points since February 2019. Banking analysts expect the repo rate will come down to 4.9 per cent.
As per the RBI directive to banks to link loans to an external benchmark instead of self-determined reference rate on their own. Majority banks opted for RBI repo rate as their benchmark for fixing interest rates for banking products including home loans. In tandem with drop in RBI repo rate, the interest rates on home loans are expected to ease below eight per cent. Any change in repo rate will have an immediate effect on banks interest rates as they are linked to external benchmark rates.
Let's take a look at different interest rates of banks. According to a latest data from BankBazaar.com, United Bank of India, BoB, Corporate Bank, Indian Bank, IoB, PNB, Syndicate bank, Union Bank of India are top-8 banks in offering cheaper interest rates on home loans in India. Among housing finance companies, HDFC Ltd is offering 8.25 per cent floating interest rate and 8.7-9.4 fixed interest rate. The interest rates of above eight banks may slip below eight per cent, however, subject to further cut in repo rate by RBI.
Bank of Baroda (BoB) is offering interest rate of 8.1 per cent for loans below Rs75 lakh. Corporate Bank is lending at 8.1-8.2 per cent, Indian Bank at 8.2-8.3 per cent, Indian Overseas Bank (IoB) is offering 8.2 per cent, Punjab National Bank (PNB) is at 7.95 per cent, State Bank of India (SBI) is lending at 8.2 per cent, syndicate Bank is at 8.1 per cent, Union Bank of India (UBI) is at 8.2 per cent and United Bank of India is at eight per cent,
Interest rates hold key amid economy slowdown
The domestic manufacturing and industrial sectors have been suffering from a continuous slowdown. Further, the fall in consumer demand, private investment and global slowdown are taking a toll on the Indian economy. India's GDP growth fell to a low of 4.5 per cent in July-September quarter of 2019-20 financial year.
Considering the pressure on GST revenues, corporation tax collections and lower GDP rate, economists forecast gross fiscal deficit for FY20 to be in the range of 4.1-4.3 per cent.
Depending upon our financial comfort and preferences over tenure, the borrowers need to decide on what type of interest rate they should go for. Because, the choice of loan will impact eventual cost of home materially. At this juncture, property buyers should take a look at advantages of floating interest rate and fixed interest rates.
(The writer is a business journalist with 26 years of experience)