On September 17th, the central bank will sell government bonds totaling ₹1 lakh crore in three separate tranches. Find out how this RBI decision will affect your home loan and fixed deposits.

RBI withdrawing Rs 1 lakh crore: What will be the impact of RBI's decision on loans and FDs?

If you have a home loan or money stashed in a bank fixed deposit, you should be aware of the RBI's latest decision. To reduce excess liquidity in the banking system, the RBI has decided to sell government bonds worth approximately ₹1 lakh crore. This sale will take place in three phases in September.

Now the question is, what impact will this RBI move have on the general public? Will it increase home loan EMIs? Will it also lead to higher interest rates on fixed deposits?

Why is RBI withdrawing Rs 1 lakh crore?

In fact, the Indian banking system currently has significantly more money than it needs. At the beginning of September, liquidity in the banking system reached approximately ₹10.3 lakh crore. Now, the RBI is withdrawing ₹1 lakh crore from the market to reduce excess cash in the banking system.

How does RBI withdraw money from the market?

When the RBI sells government bonds, banks and other investors provide funds to purchase them. This money flows out of the banking system and back to the RBI, reducing the excess cash circulating in the market. The RBI has decided to split the ₹1 lakh crore bond sale into three tranches. The first sale will be for ₹50,000 crore on September 17th, followed by ₹25,000 crore each on September 21st and 28th.

What will be the impact on home loans?

When the RBI withdraws money from the market, it inevitably impacts home loans. Banks face a cash crunch, so they raise interest rates to cover their costs. This makes EMIs more expensive. Furthermore, some banks even extend loan repayment terms.

What will be the impact on FD?

This also affects those who hold money in fixed deposits. As money becomes scarce in the market, banks are forced to raise funds from the public to meet their lending needs.

However, if there is less excess money in the system and banks need funds, they accept more deposits, leading to higher FD interest rates. This means that the RBI's liquidity crunch could lead to higher FD rates in the long run, but this doesn't mean that all banks will immediately increase their FD interest rates.