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Home loans set to turn dearer

The proposed introduction of the base rate by banks from April 1 is all set to put an end to “teaser rate” regime once and for all, reports Mahua Venkatesh.

business Updated: Feb 14, 2010 23:28 IST
Mahua Venkatesh

The proposed introduction of the base rate by banks from April 1 is all set to put an end to “teaser rate” regime once and for all.

At present, several banks are offering home loans at 8 to 8.5 per cent. However, the Reserve Bank of India has proposed to replace the current system of fixing prices for loans on the basis of benchmark prime lending rate (BPLR) with the base rate, which is more transparent and will be calculated on the cost of deposits, administrative, operative and statutory costs of banks. Thus, the base rate would vary from bank to bank and banks would not be allowed to lend below the base rate.

“Once the base rate is in place, there would be a single pattern on fixing prices for all loans, which also include home loans. It would automatically mean that banks would have to lend at over the base rates fixed by them and this would end the teaser rate regime,” said J.M. Garg, chairman and managing director, Corporation Bank.

Allen Pereira, CMD, Bank of Maharashtra said that the calculation of base rate for each bank would be crucial and the range could also be higher. “It would all depend on the costs of deposit apart from other operational costs that the bank has to incur,” he said.

According to a rough estimate, base rates of banks would not be lower than 8.5 per cent to 9 per cent.

Banks would then need to cover their risks and price their loans. “Therefore, the rate would be higher than 9 per cent,” an analyst said on condition of anonymity.