The Reserve Bank of India (RBI) has taken everyone by surprise in its annual monetary policy for 2012-2013. Between March 2010 and October 2011, the RBI had hiked policy rates 13 times and everyone was baying for a slash but not to the extent it came.
The latest cut signals the fact that RBI is keen for a sustaining growth of the economy at the cost of the inflation monster. The inflation for March 2012 stood at 6.9% while in the last 40 years it is at 8%.
The policy rates were slashed by 50 basis points when the expectation was only 25.
As a result :
The repo rate is now at 8% down from 8.5%.
The reserve repo rate is at 7% down from 7.5%
Repo rate is the rate at which RBI lends to banks and reverse repo rate is rate at which it borrows from the banks.
The decision was cheered by the business fraternity in India and almost all the banks agree that the lending and deposit rates will eventually come down. That means cheaper loan rates and will help in consumers buying more homes and cars.
Prepayment penalty on home loan goes !
State bank of India scrapped the charges first for both fixed and floating rate home loans and other banks followed suit. However, not all banks obliged.
The RBI diktat now ensures that there is no prepayment penalty on floating rate home loans.
What this means is that the investor now is free to move across lenders to take advantage of a lower floating home loan rate. Earlier, banks could charge a penalty if you decided to move to a new lender. This will also ensure that the floating home loan rates are competitive across lenders.
Also, exiting and new borrowers will get the same home loan rate. Fixed home loan rates may also see the light of the day – as of now, there is nothing fixed for the tenure of the home loan – the banks reserves the right to revisit the rates after some years. That could possibly change in the future as well.
Guidelines on banking accounts
The RBI has asked banks to allot a Unique Customer Identification Code (UCIC) by April 2013 and for newer customers, at the time they are engaged with the bank. I suspect this will pave the way for savings account portability in the future.
This unique number will also be able to identify different products which one customer bought from the banks.
Banks have also been asked to offer basic savings account to all customers. As of today, basic banking is not really made available to everyone by the banks though actually it meant for just that. That will now change. The savings account will not have any minimum balance as banks usually ask for. RBI will issue the guidelines on this shortly – so a zero balance savings account with minimum facilities like cheque books and ATM card will be at our disposals.
Banks have also been asked to frame policies on better grievance redressal mechanism to quickly resolve complaints.
My view is that these are customer friendly measures that the RBI is thinking of implementing.
I am about to take on a home loan so I am waiting for banks to slash the rates. What are your thoughts ?