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What the new credit policy means for you

What the new credit policy means for you
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First Published: Thu, Apr 22 2010. 01 15 AM IST

Graphic: Paras Jain / Mint
Graphic: Paras Jain / Mint
Updated: Tue, May 11 2010. 12 40 PM IST
In its annual credit policy announced on Monday, the Reserve Bank of India (RBI) increased key policy rates, but has given no reason for you to worry, at least in the near future.
RBI has raised the repo rate, the reverse repo rate and the cash reserve ratio by 25 basis points each. Typically, a hike in bank rates means tightening of liquidity which may translate into hardening of interest rates. One basis point is one-hundredth of a percentage point.
However, leading bankers say that the current hike will have no immediate effect on lending rates, but do not rule out an increase in the future. Romesh Sobti, managing director and CEO, IndusInd Bank Ltd, says, “At this point, we see there are no compelling reasons to hike interest rates.”
Where will rates go
Graphic: Paras Jain / Mint
Bankers expect interest rates to go up in a few months.
H.S. Upendra Kamath, executive director, Canara Bank, says: “There will be no immediate effect in the interest rates, but the hike is inevitable. If credit growth picks up briskly, we will see a hike in rates in one to two months.”
In fact, while addressing a press conference after the credit policy announcement, RBI governor D. Subbarao did not rule out the possibility of a rate hike before the next credit policy comes out. “I will not rule out a mid-cycle action,” he said.
Should you take a loan now?
Though banks may not increase the interest rate on that car loan or home loan you may be planning to take, it may do so in the near future.
So, if interest rates are expected to go up in the near future, is this a good time to avail a loan, especially a home loan? Says Harsh Roongta, CEO, Apnapaisa.com, “If you are buying a home now, you should hurry up the loan process to avail a teaser loan. Since rates are set to increase in the future and teaser loans will lock your interest at a lower fixed rate for a couple of years, it makes sense to go for them.”
Most banks giving teaser home loan rates are closing the offer by 30 April, though some are likely to extend the scheme.
Roongta adds: “Existing floating rate home loan customers can also consider shifting to a teaser loan to get the benefit of a lower fixed rate.”
For car loan borrowers, there is little danger of the loan becoming more expensive since most car loans are taken at fixed rates. But there may be merit in hurrying up on this count, too, since fixed rates would also go up if banks hike lending rates.
Steps for the customer
RBI has taken several steps in the last few years to improve customer service. In the policy report, it took one more small step.
RBI has proposed to set up a committee to look into banking services for retail and small customers, including pensioners. To further strengthen the mechanism for implementing its guidelines on customer service, the central bank will conduct on-site and off-site inspections.
The central bank has also asked banks to review and deliberate on customer service every six months in a meeting meant exclusively for the issue.
Sobti of IndusInd Bank says, “There are customer service committees in most banks. The six monthly reviews will improve the quality of customer service. At the end of the day, there is a direct correlation between customer service and the existence of a bank.”
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First Published: Thu, Apr 22 2010. 01 15 AM IST