New home loan rules hit old customers | india | Hindustan Times
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New home loan rules hit old customers

india Updated: Dec 18, 2010 02:33 IST
Sandeep Singh

Loyalty isn’t always rewarded, at least not when it comes to the home loan market.

Given the stiff competition in the market, banks have devised a novel way of selling new loans cheap while making up for the loss by raising the interest rates for existing customers.

In recent months, several banks have raised their benchmark prime lending rates (BPLR) — which they are at liberty to raise or reduce — on existing loans and offered new loans at base rates — the lowest interest rate they fix for themselves.

Thus, if you are an old home loan customer, you may face your friendly banker gently tweaking up the monthly installments while keeping his base rate stable for a newcomer.

“The banks want to use their base rates to remain competitive in the market and acquire new customers at the cost of the old ones,” a senior banker, who did not wish to be identified, said. “In my opinion that is unfair.”

Although you have the choice to switch from the BPLR to the base rate, the Reserve Bank of India is yet to allow wholesale migration. And until that happens, bankers say the anomaly will continue. What’s more, both public and private banks are adjusting their BPLR and base rates in such a way that the old customer always has to pay more.

For instance, although market leader State Bank of India raised its BPLR by 50 basis points, or 0.5 percentage point, in August, it revised the base rate by only 10 basis points, or 0.1 percentage point, in October.

Private sector ICICI Bank also raised its BPLR by as much as 125 basis points, or 1.25 percentage points, in two installments since July, although it raised its base rate by 25 basis points, or 0.25 percentage point, in October. Similar trends can be seen in the public sector banks’ lending too.