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How Demonetisation will Impact Interest Rates

In what is titled as a ‘bold’ move, demonetisation has got everyone’s attention at the same scale with people queuing up outside the banks to deposit old Rs 500 and Rs 1,000 notes.

In the first four days of the announcement of demonetisation, banks recorded aggregated deposits of over Rs 1 lakh crore. And, most of these were done in savings bank accounts and current accounts, thus giving a boost to the CASA income.

The good news is that with all this cash being deposited into the bank, customers are likely to benefit from lower cost of credit. Earlier, banks would charge a higher rate of interest to meet the demand and supply of cash. But, now that banks have a huge amount of money with them, they are in a position to meet new and more loan demands at a much lower interest rates.

This Means The Lower Interest Rates Will Make The Following Loans Cheaper :

If You Don’t Believe Us, Hear It From The Industry Experts:

“All rates will fall. It will happen very soon, although I can’t say when exactly this will happen.” Arundhati Bhattacharya, Chairman of State Bank of India, as quoted in The Economic Times.

“The deposits are into savings or current accounts which are low cost ones. An increase in them should bring down our cost of funds,” said Axis Bank’s head of retail banking, Rajiv Anand, quoted by PTI.

“After deposit of cash into banks, the money circulation in banks will improve. With the increase in cash reserves, interest rate on loans, as well as deposit, might go down,” Amit Jindal, Partner, Felix Advisory, as quoted in The Financial Express.

Further, to have more proof to the pudding, this what the numbers have to say. A recent article released in The Economic Times pointed out that the Interest rates have dropped to 5%. This drop is from the earlier number which as high as 30% in the grey market, where a large under-the-counter lending business had been thriving.

Though experts are touting a situation where loans and sectors like real estate will be cheaper, it’s time for us to soak in the changes and wait and watch its effects in the long run.

For now, if you have any questions regarding how the Interest rates will affect your loan amount, do leave your details below and we’ll get back to you at the earliest.

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