Demonetisation has mushroomed a lot of hope among common men in the country. While the banks have received close to 8.5 lakh crore rupees in their vaults, the benefits to common man have hardly been realised. 

It has been more than a month since the PM Narendra Modi made the historic announcement of demonetisation. Amidst many hopes and speculations, several sectors of the industry are eying for something better to happen. While the real estate sector is likely to be hit temporarily, at least for a six-month period, the speculation about lowering the home loan rates by many banks and financial institutes may help gain confidence among the buyers and result in a quick bounce of the real estate sector.

How demonetisation will lead to lower home loan rates?

The primary reason to impose demonetisation was to curb down corruption and have a grab on the black money market. In the sidelines, it saw a huge sum of deposits in the banks amounting to 8.44 lakh crore rupees so far and its increasing everyday almost at a rate of 5522 crore rupees per hour. With such a large amount of money coming back to the vault of the banks, they are now in a position to lend as much money they can.

The basic reason is that banks pay a very little interest to their customers on saving accounts, about 4%. On the other hand, banks have also started lowering the rate of interest earned on fixed deposits. However, banks receive comparatively large money of loans as interest. This can prompt them to lower the rate of interest on home loans, marginally slightly, which will hardly affect their stand, but it will boost up money lending by the homebuyers. This is why banks can lower the rate of interest payable on home loans.

Which banks have started the initiative?

Two of India’s large commercial banks, Bank of Baroda (BoB) and bank of India (BoI) have already announced a cut in their landing rates by 5 to 20 basis points. After the reduction of 20 basis points, Bank of Baroda has offers its one-year marginal cost of lending rates at 9.05 per cent while Bank of India has puts it at 9.25 per cent after reduction of rates by 5 basis points. . The new rates are planned to be effective for from December 7, but will be for new customers only.

However, it seems that the country’s largest commercial bank, State Bank of India (SBI) is still on a negation mode with the RBI regarding the cuts in the lending rates. The bank has reportedly said that it will pass the benefits of lower rates only if RBI removes incremental cash reserve ratio (CRR). It is noteworthy that SBI is the largest bank of the country and the people have deposited maximum amount of money in SBI after demonetisation.