Loans and Lenders – Current Scenario

If you are one of those cautions people who lean heavily towards fixed deposits (FD), you may be disappointed, as you’re likely to earn less on them. On the other hand, if you are a borrower with a floating rate loan, breathe easy: your equated monthly installments should be going down once again. And if you were waiting for the impending correction in real estate prices, you may have some good news. However, experts are unwilling to take a call on how long these things will last. Here’s a roundup of what’s in store.

RBI (India’s central bank) raised the cash reserves ratio or CRR (the money banks are required to set aside on their deposits) by half a percentage point, to 7.50% very recently. The move is likely to suck Rs 16,000 crore out of the banking system. However, the banking regulator has left its key policy rates, the reverse repo rate untouched, indicating that interest rates may remain steady in the near term. The CRR hike was a bit surprising, but holding the reverse repo rate was widely expected. Since inflation continues to remain below the RBI projection and economic growth remains robust, it was widely expected that the RBI would hike rates. RBI has anticipated and expressed concern over unbridled growth in certain pockets of the economy and therefore a rate cut was ruled out.

That means interest rtes on both deposits and loans would remain steady for sometime. Banks are likely to reshuffle their deposit portfolio and some are likely to reduce deposit rates. There no clear signals where interest rates are headed in the long term there can’t be a raise in interest rates on loans.

By holding the key rates, RBI is sending out a signal to banks not to raise rates on loans affecting economy.

Interest rates on housing, personal, and consumer loans will be affected by the RBI action. Since the CRR hike is going to suck lot of money out of the banking system, it will have an adverse impact on liquid funds available with banks. This means banks are less likely chase borrowers. They are likely to exercise more discretion, and to be more selective. So on the plus side, one can look forward to a bit of a break from unsolicited calls from telemarketers peddling loans.

The interest rates on loans looks like they will remain steady.

All first time home buyers who have been waiting in line for a loan can swing into action after understanding about the property prices in the real estate sector.

Property prices:

Most first time home buyers have also been waiting for astronomical real estate prices to come down. Experts are strangely quiet when this question comes up whether the much awaited “correction” around the corner, now. In theory, it should happen, but somehow, prices haven’t come down much. Even though the rates have gone up by 2-3% the real estate prices have only stabilized at best. In fact, even RBI has taken note of it in its policy. Prices have come down a little in most other cities, but not in Mumbai. It’s difficult to predict whether the current trend is any indication of the future.

Real estate developers are maintaining that there’s no drop in prices and they say that one always sees a drop in enquires prior and during the festive season. This time was no different.

Now that rates are softening a bit, or at least remaining steady, customers who postponed their buying decision will come back to the market. If that happens, it’s a pure demand and supply equation. Prices will stay steady or go up slightly depending on location.

However, property buyers can expect sops from builders, who are using indirect methods to prop up sales.

As for the question of whether one should take a fixed ate or floating rate home loan, there seems to be not much choice in the market. Most banks are reluctant to give fixed rate loans. At the most, one can look forward to a combination of fixed and floating rates. Whatever the case, there’s no need to fret too much about rates, as the interest rate cycle seems to have peaked.

However, not everybody is confident as some point to the possibility of bad news on oil prices which could have far reaching effects. Crude oil prices are hovering near $100 a barrel. It is unpredictable, how long the government will be able to keep petrol prices at the current level.