Understanding the Impact of RBI's Repo Rate Cut on Your Loans

RBI Lowers Repo Rate to Stimulate Economic Growth

The Reserve Bank of India (RBI) has recently reduced the repo rate by 0.50%, bringing it down from 6% to 5.50%. This decision aims to encourage economic growth and make borrowing more affordable. However, a chartered accountant warns that this could lead to significant financial implications for borrowers.

The Reality of EMI Adjustments

Nitin Kaushik, a chartered accountant, pointed out that despite the rate cut, many borrowers may not see an immediate decrease in their Equated Monthly Installments (EMIs). He explained, 'People often assume that a reduction in the repo rate automatically lowers their EMIs, but this is not usually the case.' He emphasized that borrowers need to take proactive measures to avoid losing out on substantial amounts over the loan term.

Understanding Loan Types and Their Implications

Borrowers must comprehend how the repo rate cut affects loans linked to the Repo Linked Lending Rate (RLLR) or External Benchmark Lending Rate (EBLR). Kaushik noted, 'The repo rate cut benefits only those whose loans are tied to these rates. Even then, the benefits are not automatic.'

Act Quickly to Benefit from Rate Cuts

One major reason borrowers may not see a reduction in their EMIs is that banks typically do not inform customers about interest rate cuts in advance. Borrowers have a limited window of 90 days to request these benefits. Missing this deadline could result in higher EMIs for years to come. Kaushik advises borrowers to act promptly to avoid overpaying due to a lack of information from their banks.

Steps Borrowers Should Take

To ensure they benefit from the rate cut, borrowers should verify whether their loans are repo-linked or based on older systems like the Marginal Cost of Funds Based Lending Rate (MCLR). If they are on an older system, considering a switch may be worthwhile. Although this could incur fees ranging from ₹2,000 to ₹5,000, the savings can be realized within a few months. Kaushik also recommends confirming the reset date of their loans to ensure their EMIs are adjusted accordingly.

Filing Complaints with RBI

If borrowers experience a reduction in their interest rates, they should email their banks regarding the 'Interest Reset Request under RBI Circular 2019 (Revised 2024)' to confirm the decrease. If the bank fails to comply, borrowers can lodge a complaint through the RBI's grievance management system.

Conclusion

Kaushik stresses the importance of vigilance among borrowers in light of potential interest rate cuts, advising against overpaying simply because the bank neglected to inform them. By taking swift action, borrowers can maximize the benefits of the repo rate cut and save significantly over the duration of their loans.