Showing posts with label Reverse Repo Rate. Show all posts
Showing posts with label Reverse Repo Rate. Show all posts

Wednesday, July 28, 2010

The Possible Hike In EMI On Bank Loans – My Question For The Indian Banking Fraternity

With the Reserve Bank of India (RBI) hiking the Repo Rate, there has naturally been a possibility of commercial banks hiking their rates of interest (i.e. EMI) for various categories of loans, including car loan and home loan.

Despite being a layman with little grasp of financial issues, I had no problem in understanding the direct relationship between a hike in Repo Rate and a hike in the rates of interest for the loans provided by banks. In fact it is an issue that anybody will find to be crystal clear.

However, there is something that I will like the banking sector mandarins to take note of.

If RBI has hiked the Repo Rate, then it has also hiked the Reverse Repo Rate, right? Therefore, at the end of the day the matter is back to the square one, with neither a gain nor a loss for banks.

And in that case, the banks should not hike their rates of interest for loans. Because if a hike in the Repo Rate has caused a “compulsion” for them, then at the same time a hike in the Reverse Repo Rate has caused a “dilution” of that “compulsion”.

Yes, am I wrong in my analysis?

I came to know that the hike in the Reverse Repo Rate might result in a hike in the interests offered by banks on fixed deposits. Well, I do not think that will be of much help. Because the income made from the interest on one’s fixed deposits is taxable, and the tax will increase with the increase in that income.

The middle class is more interested in a less taxing EMI. And therefore I will humbly request banks to try to retain the present rates of interest on the loans offered by them.

Yes, they are welcome to change it, if they reduce it (just kidding).