Home Loan EMIs to Get Cheaper: Consecutive Repo Rate Cut by RBI; ICICI, Kotak Bank MCLR Reduced

In the first bi-monthly rate review of the financial year 2019-20, the Reserve Bank of India has lowered repo (repurchase rate) by 25 basis points to 6 percent. The reduction in the benchmark rate was a much anticipated one following the similar rate cut in the last MPC meeting.

Repo rate is the rate at which the central bank (RBI) lends short-term funds to commercial banks. The rate cut is intended to boost liquidity in the system by making credit cheaper.  As a result of benchmark borrowing rate cut, the cost of borrowing reduces for the banks and thus they are in a better position to extend low cost loans to the customers.

After the previous rate cut many banks including SBI had marginally reduced their mortgage lending rates. Just a few days ago, ICICI Bank which is the second largest private sector bank of the country lowered its MCLR by 5 basis points across tenure and Kotak Mahindra Bank had cut down the benchmark rate by 10 basis points in select tenure.

The Latest ICICI MCLR rates, with effect from April 1:

The Latest Kotak Mahindra Bank MCLR rates, with effect from April 1:

The MCLR is an internal benchmark that sets the cap on the bank’s lending rate. Reduction in MCLR rate makes fresh borrowing cheaper.

After the previous rate cut in February 2019 by RBI, major banks including, HDFC Bank, Bank of Baroda, Punjab National Bank, Kotak Mahindra Bank, YES Bank and Union Bank of India had slashed 5-15 basis points in MCLR for select tenure.

Impact on EMIs 

Assuming that banks will soon pass on the benefits of the lowered borrowing rate (which is 0.50 % since February 2019) to the end consumers and slash MCLR, the home loan EMIs for new retail customers will be lower. While for existing Home Loan customers (servicing at a floating rate of interest), the EMI burden will lower only after the reset date of the loan. Most banks in India lend Home Loan at a reset period of 6 months or 12 months. After the reset date, your future EMIs will be re-calculated as per the latest MCLR rate till the next reset date.

While the effect on your EMI may not be immediate for most of the retail customers, the move will certainly work as a much-desired breather for languishing real estate sector making the home loan more affordable for new home buyers and investors-in-waiting.