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Banks offer cheaper second loans to existing borrowers

india Updated: Jun 15, 2012 00:41 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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Have you already taken a consumer loan and planning to go for another? Approach the same lender and you may end up getting a 25-50 basis points (100 basis-point is 1 percentage point) waiver on prevailing interest rates.

Most lenders are looking to provide discounted rates of interest to their existing borrowers, who have been repaying on time.

Even as interest rates have hardened over the last one year and banks have taken a cautious approach in offering loans to customers, most lenders are looking to retain existing customers by lowering interest rates on loans. Earlier, banks were shying away from giving loans to customers who were already servicing debts due to fears of non-repayment.

"We are offering a flat 50 basis points discount to our borrowers who are opting for combo loans - home, auto and personal, we are giving a 50 basis point discount to all three loans," TM Bhasin, CMD, Indian Bank told Hindustan Times.

"Customers with a good track record and a long relationship with the bank are offered a preferential rate of interest," said an HDFC spokesperson.

The Reserve Bank of India (RBI) has asked banks to be cautious as a higher-than-expected hike in interest rates could have an adverse impact on the asset quality of banks.

However, 80% of borrowers in India have a good credit history, according to records available with the Credit Information Bureau (India) Ltd (CIBIL) - the agency that tracks the credit history of borrowers and assesses their credit worthiness.

"We want to help banks in retaining existing customers who have a loan running with them. In this respect it is beneficial for banks to give multiple loans to the same borrower with a good record," Arun Thukral, managing director, CIBIL said.

CRISIL Research, India's largest independent and integrated research house, in a report last year estimated that rising interest rates would increase the equated monthly installments (EMIs) of home loan borrowers by about Rs. 6,000 crore annually. Higher EMIs and a slowdown in economic growth would also result in an increase in non-performing assets (NPAs) of financiers, the report said.