How banks deny full benefit of RBI rate cut to the common man

The euphoria over a higher-than-expected 50 basis points (bps) rate cut by RBI governor Raghuram Rajan late last month has somewhat died down.

The surprise rate cut enthused stock markets for a brief while, cooled off bond yields and made life better for corporates since the money market rates have come down, thus, lowering their borrowing cost. But, where does the common man, the borrower of home and auto loans find himself in this game? Let’s try to answer this question:

After the policy announcement, several big and small banks announced reduction in their base rates, or minimum lending rates. While most have cut their base rates by 25 bps, the larger ones — State Bank of India and ICICI Bank — have announced bigger rate cuts by 40 bps and 35 bps points, respectively, making their base rates 9.3 percent and 9.35 percent, respectively.

But, a consumer who approaches his bank lured by the new base rate being publicised would surely be in for a rude shock — he will find that banks are offering him higher rate and not the base rate.

Read more at http://www.firstpost.com/business/the-great-indian-rate-trick-how-banks-deny-full-benefit-of-rbi-rate-cut-to-the-common-man-2458688.html