Rate of Interest on Home and Education Loans

Rate of Interest on Home Loans

Reserve Bank of India had deregulated the interest rates on advances sanctioned by Scheduled Commercial Banks, with effect from October 18, 1994 and these interest rates were determined by bank themselves with the approval of their Boards, subject to Benchmark Prime Lending Rate (BPLR) and spread guidelines.

The above guidelines based on the BPLR system have been replaced by new guidelines on the Base Rate System issued vide circular dated April 9, 2010, which have come into force with effect from July 1, 2010. In terms of the new guidelines, banks determine their actual lending rate on loans and advances with reference to the Base Rate. All categories of loans, except specified exemptions, are priced only with reference to the Base Rate, which is announced by banks after seeking approval from their respective Boards. The Banks are not permitted to resort to any lending below the Base Rate.

This was stated by the Minister of State for Finance, Shri Namo Narian Meena in a written reply to a question in the Lok Sabha today.

Interest Rate on Education Loans

As per directions of Reserve Bank of India, with effect from 1st July, 2010, banks are required to price their loan products including education loans linked with the base rates approved by their respective Boards. Banks are not permitted to resort to any lending below the Base Rates. Accordingly, interest rates on education loans are decided by the bank concerned as per their approved policy.

In order to provide relief to the students, the Model Education Loan Scheme of Indian Banks’ Association (IBA) provides for certain concessions on educational loans which inter-alia includes:

• Simple interest is charged during the study period and upto commencement of repayment;

• 1% interest concession provided by the banks, if interest is serviced during the study period and subsequent moratorium period prior to commencement of repayment;

• 0.5% concession in interest rates is provided for the girl students;

• Full interest subsidy has been made available for educational loans disbursed on or after 1st April, 2009 during the period of moratorium for the students belonging to economically weaker sections from scheduled banks under ‘Interest Subsidy’ scheme of Ministry of Human Resource Development

This was stated by the Minister of State for Finance, Shri Namo Narian Meena in a written reply to a question in the Lok Sabha today.