Earlier this month, with the announcement of the new monetary policy of RBI, it was some good news and some bad for the borrowers. The good news was that RBI adopted unconventional measures to bring down the cost of funds for banks. It made the cash reserve ratio (CRR) requirement easier on incremental loans in the auto, housing and MSME (micro, small and medium enterprises) segments. RBI also allowed banks to borrow money for one to three years at the existing repo rate.
Shorn of the financial jargon, meaning lenders have been given access to cheaper funds which will lower down the interest rates for auto and housing loans. This means cheaper funds are transferring on to borrowers in the form of lower interest rates. The State Bank of India (SBI), which one of the biggest lender also had cut its marginal cost of funds-based lending rate (MCLR) and other banks are expected to follow suit.
If you also have any plans to apply for a home loan, or wants to buy a car through loan, then you can get the low rate and would need to pay low emi too. This has been done to encourage borrowing and fuel demand. The auto and real estate sectors have indeed been languishing because of weak demand for the past several quarters. If lending rates come down, these sectors could witness a pick-up in sales.