Demonetization drive in the country has led to the banks stock up the currency notes and cutting their interest rates in that order. This move has helped attracting more customers. This will also help the needy ones and boost our economy. The rate cut is derived out of the demonetization effect because the government wants everyone to have a home by 2022. The interest on other loans has also been reduced by some percentage, as the lending rates have been lowered.

The rate cut will have different effects on different classes of people. Following are some of the instances as to how the rate cuts by the banks have affected different groups of people:

  • Individuals who have already taken the home loans can now enjoy the relief of paying lesser interest on their home loan EMIs.

  • Tax-free bond holders and debt fund holders can make significant gains and are enjoying the cut of lending rates by the banks.

  • The cost of capital for the corporate companies will decrease, and hence they are content with this decision.

  • Old borrowers can now take advantage of the new loan schemes and get benefit out of the new tax rates.

Banks are now resorting to the MCLR (marginal cost of funds based lending rates) scheme. As per this scheme, funds are going to be offered and calculated on the basis of borrowing and return on net worth’s marginal costs for banks. The scheme was introduced by RBI in order to provide fair rates of interest to banks as well as the borrowers. This scheme is supposed to take pace in June.

The cutting of the rates by 0.9% by the banks would be beneficial in the follow ways:

  • The cutting down of the rates would also reduce the rates of houses and vehicles and other such loans.

  • The EMIs of the people with existing home loans will decrease and the duration in which they have to pay the loan back will also reduce with this.

  • Corporates can raise money from the capital markets as the majority of their loans are MCLR based and they could mostly benefit from it.

  • It would also benefit the retail investors.

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