There is no immediate respite to home, auto and corporate loan borrowers in terms of their monthly equated instalments (EMIs) but with the RBI reducing the cash reserve ratio (CRR), banks will have more money to lend.
After the Reserve Bank unveiled the third quarterly review of the monetary policy, several bankers said that they may not go in for rate cut immediately.
However, a few like Oriental Bank of Commerce Executive Director S C Sinha said the CRR cut would "definitely lead to reduction in interest rates."
Chairman of the Prime Minister's Economic Advisory Council and former RBI Governor C Rangarajan said that as the primary injection of Rs 32,000 crore liquidity (through CRR cut to 5.5% from 6%) would have a multiplier effect, the interest rates would soften.
"The improvement in liquidity condition will automatically have effect on the interest rates. It would lead to softening of interest rates," he said.
CRR is the percentage of bank deposit that lenders have to keep with the RBI. The new rate would be effective from January 28.
Since March 2010, the retail and corporate loans have become expensive for the borrowers but the fixed deposit holders had benefited from the 375 basis point hike in the short-term lending rate by the RBI.
Canara Bank Executive Director AK Gupta said banks would now get much-needed liquidity. This will also allay fears of further hike in base rate.
"Probably, interest rates may not come down immediately," he said, adding, the banks will however will have more cash at their disposal.
