Banking: Shortage of cash in banks, it may take three months for loan installments to decrease; Important changes after repo rate reduction

New Delhi| For the first time after almost five years, RBI has given relief to customers taking various types of loans by cutting the repo rate by 0.25 percent, but it may still take two to three months to get its benefits. The main reason is…Shortage of cash with banks. To get out of this problem, banks are focusing on raising deposits by paying higher interest even after cutting the repo rate. Banks will definitely benefit from this.

Experts say that people who have taken loans at fixed rates may take a lot of time to get the benefit of repo rate cut. However, customers taking loans at floating rates are expected to get its benefits soon. Nevertheless, it may take two-three months for both types of customers to benefit from it. Only after this their monthly installment (EMI) will reduce.

The growing proportion of floating rate loans has reached more than 40 per cent of the total loan book and is based on external rates, said Ajit Veloni, senior director, CRISIL Ratings. Therefore, borrowers may have to wait for the interest rate to fall. Suyyash Chaudhary, head of fixed income at Bandhan AMC, said banks will first have to review their financial position to cut interest rates, as they do every time. As soon as the first quarter of the new financial year i.e. 2025-26 starts and there is improvement on the cash front, banks may start reducing loan interest rates.

Experts have expressed concern about the future cash situation. If RBI does not implement additional liquidity measures after showing improvement in February, 2025, the system’s cash could decrease by up to Rs 2.50 lakh crore by the end of March, 2025. This will further increase the pressure on banks, which will delay the reduction in interest rates. RBI Deputy Governor Swaminathan J said the rate cut could have an immediate impact on loans linked to external benchmarks.

There will be no impact of reduction or increase in repo rate on existing depositors. But, its impact will definitely be seen on the new deposits received by banks. Experts say that there is an environment of competition among banks regarding deposits. In such a situation, if banks reduce the interest rates on deposits, then customers can withdraw their money and invest in some other instrument. In such a situation, banks can maintain high interest rates for some more time to maintain these deposits and attract new customers.