General Awareness Series: How does Interest Hike from RBI affect us?

With the recent shuffling of the interest rates there has been lot to hear in this regard. Many say it will help our country to grow while few look this from other angle. Lets see what it really means for us and whats the impact. Reserve Bank of India’s Governor, Raghuram Rajan brought down the key policy rates by 25 basis points. 

To understand further we need to first focus on as what are Basis points. Basis points are defined as 1/100^th of a percentage or 0.01%. So for example if basis point is reduced by say 25 then an interest rate which was earlier say 7.65 would now reduce to 7.40 i.e a drop of 0.25. Furthermore if rate of interest drops from 3.25 to 3.00 then that means it has dropped by 25 basis points.

With this move Raghuram Rajan has made an effort to tame the current problem of Inflation. The efforts made are worthy of an appraisal as it not only effects the banking sector but greatly benefits the common man as well. Let’s look at how a common man gets impacted by this new move made by the RBI’s Governor.

•    Existing Home Loan Customers – With the new policy made by the RBI the public and private sector banks will implement it as well. So for a person who has an existing home loan, his or her bank may reduce the EMI by 0.25 to 0.50. This means that if say the loan averages out to be 30 lac the person will save 900 rupees per month, an extra saving. The move to lower EMI may be followed by some banks earlier while others may follow it later; the choice of bank is always open to a consumer.

•    Existing Car Loan Customers – For people who already have taken a car loan, this change in policy will not affect their EMI in any way as car EMI’s comes under fixed rate for tenure. The EMI which was decided would have to be paid without any modifications to it.

•   Existing Personal Loan Customers – Like Car loans the personal loans will also be not affected. Rates and EMI will remain fixed for entire tenure for the customers.

 Other Impacts

•    Improved Market Sentiment – Due the changes made the market sentiment had improved as sensex is rising high.

•    Companies to Benefit – As interest rates will be low, companies will also benefit in hiring new places for offices and money for more business.

 With the consumer able to save money every time he has to pay an EMI, the overall savings will increase and things will become cheaper for us. A direct result of this would be that the things which once appeared to be very expensive and seemed almost out of range would be within range. Inflation, which has affected everyone from the super rich to the poor would be tamed and be slowly under control. The efforts made by the Reserve Bank of India are indeed a commendable job in itself as it makes life easier for the common man.

Hope now it is clear to you what it would do and what it really means. What are your views on this whether it will contribute in growing our country or will keep the situation as it is. Share your views in the comment section and let the discussion go on. Also if you like our efforts then share the article with your friends. If you also feel the need to share your piece of information with the peer aspirants you are most welcome to write for us. Please visit that tab and send us the details as to what you really wana share with your friends. Our collective efforts would only make dreams of many come true and we will surely see successful officers protecting our motherland. 

About the Author: Shekhar Tanwar is a computer science engineer who is working with a renowned MNC and is a die heart defense aspirant. Guitar is his passion and he is very firm believer of physical fitness. This article is a way to help defense aspirants to present his critical views on the topic, on the forum so that collective exchange of thoughts can take place.