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Post RBI policy, no immediate gains for borrowers, but depositors to suffer

There was some good news and some not so good news for borrowers when the Reserve Bank of India (RBI) announced its monetary policy review earlier this month. First the good news. RBI adopted unconventional measures to bring down the cost of funds for banks. It eased the cash reserve ratio (CRR) requirement on incremental loans in the auto, housing and MSME (micro, small and medium enterprises) segments and also allowed banks to borrow money for one to three years at the existing repo rate.Shorn of the financial jargon, this simply means that lenders have been given access to cheaper funds which in turn could bring down the interest rates for auto and housing loans.This is presuming the perfect transmission of cheaper funding is indeed passed on to borrowers in the form of lower interest rates. The State Bank of India (SBI), one of the biggest mortgage lenders in the country, has already cut its marginal cost of funds-based lending rate (MCLR) and other banks are expected to follow suit. Let’s hope for the best.

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