Why is my loan provider not fully transferring the repo rate cut benefit to me?

What is benchmark for home loan interest rates and why is my loan provider not fully transferring repo rate cut benefit to me? 

I have heard that whenever the RBI repo rate increases or decreases, the same happens to our existing floating rate. When I asked my loan provider, they replied that whenever the rate decreases, for example, if there is a 0.50% drop, the interest rate on my home loan will drop by just 0.20% as they are private lenders. Is this true?

Is there any link for complaints or queries regarding the updated government rules and regulations on housing loans?

Reply by:  Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd

The benchmark for home loan interest rates can vary depending on the lender and the type of loan. Mainly there are a couple of common benchmarks in India:

MCLR (Marginal Cost of Funds Based Lending Rate): It’s an internal benchmarking rate, which involves the bank setting interest rates based on its cost of funds. While the repo rate is a significant factor influencing the interest rate, other factors such as banking system liquidity and the availability of low-cost deposits also play crucial roles in determining it.

Repo Linked Loan Rate (RLLR): RLLR, or Repo Linked Lending Rate, is an external benchmark tied to the RBI's repo rate. Any adjustments made to the repo rate by the RBI will consequently impact your home loan interest rate.

Regarding rules and regulations for home loans, both banks and non-banking financial companies (NBFCs) or housing finance companies (HFCs) are required to adhere to the guidelines set by the Reserve Bank of India (RBI). 

While the basic regulatory framework applies to both banks and HFCs, however, some specific guidelines or regulations apply only to NBFCs, depending on their regulatory classification and the nature of their operations. Borrowers need to be aware of these regulations and seek clarification from lenders regarding any specific terms and conditions associated with their home loan agreements.

While banks typically follow the RBI's guidelines closely and adjust their lending rates in line with changes in the repo rate, HFCs typically have more flexibility in setting their interest rates.

HFCs may consider various factors, including their cost of funds, market conditions, and competitive pressures when determining their lending rates. As a result, the extent to which they pass on changes in the repo rate to borrowers may differ from that of banks.

In the scenario you described, where your loan provider mentioned that they would only decrease the interest rate on home loans by 0.20% for every 0.50% decrease in the repo rate, it suggests that they have a different transmission mechanism compared to banks. This could be due to various reasons, such as their cost structure, risk management practices, and profitability objectives.

It's essential to carefully review the terms and conditions of your loan agreement with your lender to understand how changes in interest rates are determined and communicated. If you have any concerns or questions about the interest rate policy of your lender, you may consider discussing them directly with your loan provider for clarification.

Regarding your query on links for complaints or queries, there are several avenues where you can file complaints or seek clarification regarding government rules and regulations related to housing loans. Here are some common channels you can use:

1. You can visit the RBI's website and navigate to the "Complaints" or "Consumer Education and Protection" section to find information on how to file complaints or queries related to housing loans.

2. You can also visit the National Housing Bank's website and explore the "Complaints" or "Consumer Grievances" section to find resources for lodging complaints or seeking clarification on housing finance regulations. The NHB also publishes circulars, guidelines, and FAQs related to housing finance.

3. Consumer Protection Forums: You can approach consumer protection forums such as the National Consumer Helpline (NCH) or local consumer dispute redressal forums to file complaints or seek guidance on housing loan-related issues.