New Rates not for old Home loans

 

Source:HT


Central bank proposes. Commercial bank disposes.
While the Reserve Bank of India (RBI) is frowning at
“teaser” home loan rates that come cheaper to new
customers, banks say they cannot honour old loans
with the same rate as it could hurt their profitability.


RBI had raised serious concerns over teaser rates
saying that these lack transparency and may lead to
unviable loans – called bad assets.
It also wrote a letter to the Indian Banks Association
seeking explanation on teaser rates and asking banks
to extend the same benefits to existing and old customers.

Keki Mistry, vice-chairman & CEO, HDFC told Hindustan
Times that his firm had not received any letter but added that
interest rates were a function of the overall cost of funds for
banks. Some bankers said the cost depended on fixed
deposit rates that cannot be altered easily.

“When the cost of funds come down the benefits are
transferred to both old and new customers.

However, the cost of fund has to come down in the
existing balance sheet. It is so that one raises
Rs 100 crore or Rs 500 crore and give out loans
of that amount. But when the cost of fund changes,
it changes only for the new money that comes in and
so the existing customers continue to be at the same rate.
These are the complexities,” Mistry said.

Last week, RBI deputy governor K C Chakrabarty
said that banks should not exclude one customer
segment from a benefit extended to another. Banksers squirm at this.

“Such rates have been offered to new customers based on their
repayment capacity and whether they would be able to increase
their monthly payment. It cannot be extended to the old
borrowers whose credit repayment analysis have
been based on other criteria,” a senior official at a
public sector bank said on condition of anonymity.

However, J.M. Garg, chairman and managing director,
Corporation Bank said that the contours of interest rates
may change after the implementation of the proposed
referential base rates slated to be in effect from April 1.

Indian Banks Assocaition’s chairman MV Nair did not
respond to calls made by HT.