EBLR linked home loans to be cheaper immediately, those linked to MCLR in 6 months

Reserve Bank of India (RBI) Deputy Governor Swaminathan Janakiraman. | Photo Credit: ANI

Now that repo rate has been reduced by 0.25% to 6.25%, floating home loan interest rates are set to be reduced by 0.25% bringing relief to millions of borrowers.

Answering a question on the likely time line of transmission of the rate cut to lending rates, Reserve Bank of India Deputy Governor Swaminathan J said since 40% of the home loan book is linked to External Benchmark Lending Rate (EBLR), this segment of loans will have ‘immediate impact”.

“In respect of the book linked to Marginal Cost of funds based Lending Rate (MCLR), which is almost equivalent to the EBLR book, it typically takes about two quarters for the effect to play out. This is our past experience because the reset periods are mostly six months.”

There are also loans that are linked to three months or one year benchmarks as well.

On the impact on deposit rates, he said the existing deposits will have to be carried on the contracted rate. Only on new deposits the rates will change. “So in terms of monetary policy transmission to the deposit rates, it again takes at least about two quarters. So that’s the general trend we have observed,” he added.