The second bi-monthly RBI monetary policy review of 2017 is set to happen tomorrow i.e. April 6. Seeing the RBI’s shift from accommodative to a neutral stance, there is a widespread speculation that the central bank may hold on to the key policy rates, continuing from where it left off in February this year. Repo rate, at which the RBI lends money to commercial banks for their short-term needs, was left unchanged at 6.25% in Feb. And with inflation figures showing a bit of discomfort among the policy makers, don’t be surprised if the rates are unchanged this time around as well. The report on monsoon is also not encouraging with the rainfall likely to be lower than expected. All these and more do make it slightly difficult for the home loan borrowers to enjoy the falling rates that they have been the beneficiary of in the recent times.
For example-If two banks have the MCLR of 8.15%, the resultant lending rate can be 8.45% per annum at one bank and 8.65% at another. Want to know what constitutes the spread element of the lending rate? Take a look at the points below.
Operating Expenses – The day-to-day cost of managing the bank’s operation.
Cost to Maintain Cash Reserve Ratio – As you would know that the banks are supposed to maintain a cash reserve, popularly known as Cash Reserve Ratio (CRR), with the RBI. And in turn, the banks do not receive any interest on the said deposit. So, this comes out as a cost for the banks and get often passed on to the borrowers.
Marginal Cost of Funds – The interest offered by banks on products like savings, term deposits, foreign currency, etc, is termed as a cost for the bank. Even when the banks borrow from the RBI at the repo rate, it goes down as a short-term borrowing cost. While setting the lending rates, all these costs are passed on to the end consumers.
Tenure Premium – An additional slab of interest over the base rate depending on the tenure of the loan.