Even SBI has carefully restricted the more favourable RLLR option only to its new borrowers. Even for new borrowers, it is not clear if they will be able to avail of this favourable RLLR option easily. It might be instructive to note how many new borrowers were added under this new rule in August 2019 (SBI introduced the RLLR option in July 2019).
The inherent belief of the powers-that-be appears to be that a new home loan
is the only way to provide a fillip to economic activity. But a new home loan
borrower may not necessarily buy a newly-constructed or under-construction home. He will still enjoy all the favourable terms (including PMAY subsidy, if eligible).
However, if the rate cut is passed on to all existing borrowers as a reduction in monthly EMI (rather than as a reduction in the number of balance instalments), it will leave additional money in the hands of the borrower to spend or save. This will provide a stimulus to private consumption or household savings, and both are needed quite badly today. The amount of stimulus is not exactly small.
The outstanding home loans from scheduled commercial banks is around Rs 11,87,000 crore, and a reduction in EMI by passing on even 50 basis points could lead to leaving an additional Rs 7,000 crore in the hands of home loan
borrowers. If extended to outstanding home loans of housing finance companies and outstanding loans of small businesses, there would be a decent stimulus of Rs 15,000 crore a year for the economy.
The default option for passing on the benefit should be by way of reducing the EMI and not reducing the number of balance instalments in the loan. Can the regulator (or the government) bite the bullet?
The writer is a Sebi-registered investment advisor