Loans of four government banks have become cheaper. After the 0.50% cut in the repo rate by RBI, these government banks have also reduced their repo linked lending rate (RLLR) by 0.50%. These include Bank of Baroda, Punjab National Bank, UCO Bank and Bank of India. Punjab National Bank said that its home loan rate will start from 7.45%. Earlier this rate used to start from 8%. At the same time, the interest rate of vehicle loan will now start from 7.80%. The other three banks have not yet updated their new rates. They have just informed about reducing RLLR. After the latest cut, the EMI on PNB’s 20-year loan of ? 30 lakh will be reduced by Rs 1017. Similarly, the EMI on a 30-year loan of ? 30 lakh will be reduced by Rs 1139. Both new and existing customers will get the benefit of this. Bank of Baroda has reduced RLLR to 8.35%. This interest rate cut will benefit all those people whose loans are linked to RLLR… For new loan takers: If you are thinking of taking a new home loan, auto loan, then now you will have to pay less interest. For example, the interest rate of new home loan in Bank of Baroda used to start from 8% earlier, now it will be reduced to around 7.50%. For old loan takers: Those who have already taken floating rate home loan linked to RLLR, their interest rate will also decrease in the next reset period. This will either reduce their EMI, or the loan tenure will be reduced. If the loan is linked to fixed rate, then there will be no benefit. If the repo rate decreases, then RLLR also decreases. Banks decide the interest rate of their loans on the basis of RLLR. If the repo rate decreases, then RLLR also decreases, and the loan interest rates also decrease. In RLLR, the bank adds a margin on top of the repo rate to cover its expenses and profits. Example: Now answers to two important questions… 1. Will the old and new loans get the same benefit? According to RBI rules, it is necessary to reset the floating rate loan from time to time according to the repo rate. This means that the interest rate of those who have already taken a loan will automatically decrease, because the bank has to give the benefit of the reduction in the repo rate. But, new loan takers may not get the full benefit. This is because the banks can increase the additional margin i.e. spread that they add on top of the repo rate to save their profits. 2. Can old loan holders switch from fixed to floating? If your loan is linked to MCLR or fixed rate, then you can talk to the bank and switch it to RLLR. However, some fee may have to be paid for this. If your loan is still in its initial years, then switching can save interest in the long run. RBI had reduced the repo rate by 0.50% to 5.50% RBI had reduced the repo rate by 0.50% to 5.50%. The decision of this reduction was taken in the Monetary Policy Committee meeting held from 4 to 6 June. RBI Governor Sanjay Malhotra had given this information on 6 June. Repo rate reduced 3 times this year, reduction of 1% was made RBI had reduced the interest rates from 6.5% to 6.25% in the meeting held in February. This reduction was done by the Monetary Policy Committee after almost 5 years. For the second time in the meeting held in April, also the interest rate was reduced by 0.25%. Now the rates have been reduced for the third time. That is, the Monetary Policy Committee has reduced the interest rates by 1% in 3 times.
