Thursday, February 11, 2010

RBI wants teaser rates for old loans

By Manju AB & Rajendra M Palande Feb 10 2010 , Mumbai

 THE Reserve Bank of India (RBI) has finally taken up the cause of Old Home

Loan borrowers who are stuck with loans at high interest rates.
It has asked banks to extend the benefit of low interest rates, described
as teaser rates, to old customers also.

RBI has sought an explanation from banks if they feel the teaser rate
benefit cannot be passed on to older customers. The teaser loan
schemes have been on for the last one year.



RBI has been putting pressure on banks to end teaser home loan rates.
Union Bank of India has already withdrawn its special home loan
scheme of 8.25 per cent fixed interest rate for three years with effect from February 15.

“We have sent a correspondence to IBA (Indian Bank’s Association)
asking banks to give an explanation as to why there can’t be parity in
interest rates between new and old home loan customers,” said a senior
RBI official, who did not want to be identified.

RBI customer service department wrote a letter to IBA late last month
suggesting that banks should treat both old and new home loan customers
at par and not discriminate against customers who have availed of loans more
than a year ago and are paying much higher interest rates.

The RBI’s concern is that the older home loan borrowers have not enjoyed
the benefit of falling interest rates over the past one-and-a-half year and
now as interest rates are set to rise, probably from the second quarter
of 2010-11, they would be the worst hit with new borrowers sitting pretty
paying 8-8.5 per cent interest.

State Bank of India (SBI) and a host of other banks are offering home
loans to new customers at 8-8.5 per cent fixed for an initial period of up
to 3 years. Thereafter the then prevailing floating interest rates will be charged.

why the benefits of lower interest rate have not peculated to home loan customers

Feb 10: The Reserve Bank of India (RBI) has asked the
commercial banks to explain why the benefits of lower interest rate have not peculated to home loan customers despite the cut in repo and reverse repo rates.

Buzz uSpeaking for the people, who are struggling to pay the
high interest rates, the central bank on Wednesday, Feb 10
sent a letter to the Indian Banks' Association (IBA) seeking
higher transparency of home loan rates.


RBI, which wants to know if the banks are violating norms by
discriminating between old and new customers, has also threatened
action against the bank if its letter doesn't get a reply.

The banks are reportedly not giving the benefits to the old customers.

Besides, the RBI cut reverse and repo rates thrice during the
first three months of 2009 so that the bank could cut down
the lending rates to help the customers.