Car loans to get cheaper regardless of whether Raghuram Rajan cuts interest rate or not. The revised rates will lower the amount one earns on deposits and make car loans cheaper.
Cut in small saving rates will bring down the bank deposit rates. Lenders should wait for the monitory policy review, due on 5th April. RBI is expected to cut the bank interest rates by at least 25 bps.
Last Friday, the government reduced the interest rate on various schemes by 60 – 130 bps.
Banks have been stating that due to competition from small savings scheme they were not able to reduce their deposit rate further. As a result, the costs of funds were not coming down and hence lending rates could not be lowered.
Also, the switchover to the Marginal Cost of Funds-based Lending Rate (MCLR) will force lenders to pass on the benefits to customers. Lenders until now mostly followed the average cost of deposits formula, while MCLR brings down the cost of deposits faster in a falling-interest rate regime. This, in turn, gives lenders leeway to cut lending rates. As per the formula, unless you determine the marginal cost of deposit, you cannot arrive at the marginal cost of lending rate. The MCLR formula calculations are yet to be finalized in most banks.
Principal Correspondent
Twinkle Jain
