Base rate clouds home loans | india | Hindustan Times
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Base rate clouds home loans

Commercial banks are concerned over the Reserve Bank’s new interest rate system under which lending rates are to be linked to a base rate. They are seeking clarifications in an attempt to de-link home loans from the plan, reports Mahua Venkatesh.

india Updated: Mar 07, 2010 22:34 IST
Mahua Venkatesh

Commercial banks are concerned over the Reserve Bank’s new interest rate system under which lending rates are to be linked to a base rate. They are seeking clarifications in an attempt to de-link home loans from the plan.

This is because the expected base rate of around 8.5 to 9.5 per cent could lead to home loans being offered at 10 per cent or more. At present, home loans are available at 8.5 per cent for start-up customers at “teaser” rates offered by some banks.

Bankers say home loan rates must be kept at affordable levels for consumers.

“Though most concerns over the implementation of the new system have been addressed by the Reserve Bank of India, certain more clarifications are awaited,” the chairman of a public sector bank told Hindustan Times.

Bankers say “teaser” rates to lure customers should be discontinued, but add that lending rates cannot be unreasonable either.

“Affordable housing is an important issue and we are yet to get clarification from the central bank if home loans would also be linked to the base rate,” said M S Sundara Rajan, chairman and managing director, Indian Bank.

The base rate system, due to be implemented from July 1, would replace the current practice of benchmark prime lending rate (BPLR) system. Nearly 72 per cent of all loans are currently priced below the BPLR. The new rules, aiming for transparency, forbid loans priced below the base rate.

According to the draft of RBI guidelines, the actual rate a borrower will pay would involve the base rate and additional charges linked to costs, tenure and the risk premium specific to a borrower.

The current BPLR is between 11.5 per cent and 12.5 per cent.