The Reserve Bank of India (RBI) has asked banks to enable existing home loan borrowers to benefit from lower rates along with new customers, a senior official of the Indian Banks’ Association (IBA) told Reuters. In a letter to the IBA, the central bank has asked banks to reconsider their decision after lenders told the Reserve Bank of India (RBI) last year that reducing rates on all home loans is unviable for them.
“There has been a constant dialogue with the customer service department. We had earlier told RBI that repricing all home loan rates was not a viable proposition as in that case all home loans will have to be reduced to 8%,” a state-run bank head.
“The customer service department… wants banks to reconsider their decision of giving lower rates to only new customers,” said the senior IBA official.
The issue was raised with bankers by RBI deputy governor KC Chakrabarty at the monetary policy review meeting last month, a banker said.
Banks had launched special home loan schemes at 8% in late 2008 to attract new customers, but did not reduce the lending rates of the existing borrowers, which was as high as 12%.
As banks usually price their home loan rates linked to the benchmark prime lending rate or BPLR, rates on older loans can change only when banks revise the BPLR, officials said.
Typically the spread is around 200-250 basis points below the BPLR, which is on an average 11-12%.
“RBI is saying that for any change in product pricing, banks should change the BPLR so that the benefits are passed on to everyone,” the IBA official said.
IBA will discuss the central bank’s latest letter at its managing committee meet on Feb 26, the official said.