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Banking: Prashant Joshi

Business Standard / 12 Jun 12 | 12:32 AM

I had invested in a fixed deposit for a year, a day before my bank cut its deposit rate on that maturity. Does that mean I will earn a rate lower than I was told?
According to the current practice, fixed deposits are booked at the interest rate prevailing as on the day/date clear funds are received by the bank. Hence, in this particular case, if clear funds were available with the bank before the rate cut, your fixed deposit will be booked at interest rates that were prevailing before the interest rate cut.

Banks are cutting their base rates since the announcement of the monetary policy. How does this impact an individual?
The reduction in base rate of banks would mean that interest rate on loans that are linked to the base rate would come down correspondingly resulting in lower borrowing costs. For home-loan customers, this would mean reduction in the equated monthly instalments (EMI) amount or reduction in the number of EMIs (if amount remains unchanged).

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When does it make sense to opt for a fixed-rate loan vis-a-vis a floating rate loan? Will falling base rate impact fixed rate loans?
It is advisable to opt for fixed rate loans when, a) the interest rates are forecast to rise over the medium term and b) when an individual wants to fix his monthly commitment on EMIs and not be impacted by the changes in interest rates. Fall in the base rate does not impact fixed rate loans in case of the loans where the interest rate is fixed for the full contracted term.

I have been planning to buy a house (with a home loan), but could not due to sky-high rates. Now that the first cut has happened, how much do you think the rates will fall by the end of this year? I will plan accordingly.
While making a decision about housing loan, it is more important to look at total EMI as a proportion of your income irrespective of the interest rates. While most experts are of the opinion that the interest rate curve has turned, estimating the quantum and timing of reduction would be difficult.

I am 32, and am working for a private company. I want to take a personal loan. Could you elaborate as to how different this loan is from others in terms of interest rate and tenure?
Personal loans are granted to tide over short-term liquidity crunch or to meet an immediate personal need. These loans are granted without security or collateral and therefore, are offered at interest rates higher than secured loans (like home loan). The loan tenure may range from 12 to 60 months and the rate of interest from 16 to 24 per cent a year depending on your existing relationship with the bank, repayment history and your credit score.


 

The writer is MD & head, private & business clients (India), Deutsche Bank

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