Base Rate Regime To Defend Interest Of Existing Borrowers

Existing home loan customers may be in position to bargain for a lower interest rate, as many banks are expected to pare their rates after the new base rate regime kicks in from July 1.

The banking regulator has already said that the existing customers should be given an opportunity, if they desire, to shift to the new transparent base rate system.

Many public and private sector banks confirmed that retail loans are likely to be priced 1-2 percentage points above the base rate to stay competitive.

“The new customer may enjoy rates in the region of 9-10 Percent, while existing customer will still be paying 1-2 Percent below the existing prime lending rate which for some banks is as high as 13.75 Percent,” said an official of the country’s largest lender, State Bank of India.

This will give existing customers an opportunity to renegotiate rates when the switch the benchmark for their floating rates to the new base rate from the current prime lending rates. Banks were allowed to lend below their respective prime lending rates, which meant that most of them kept their rates high, denying the customers benefit of declining interest rates.

In the new system, banks will not keep the base rate high as they could be out priced.

“In order to be competitive most banks will keep the base rates in the range of around 8-9 Percent. Customers who are in the mid-term of the loan period and are paying interest in double digits will have an advantage” said the SBI official.

The bank has given indications that it will keep its base rate at 8 Percent, Bank of Baroda Chairman MD Mallya also told ET that their base rate will also be in the range of 8-8 .5 Percent.

Banks are, however, not yet ready to openly acknowledge whether they’ll pass on any benefits to their existing customers.

“It will depend on the customer profile as well. Generally banks tend to hold on their retail customers even if they have to pass on a 50 basis points (0.5 Percent) rebate,” said an official from a private sector bank.

Customers may also benefit from the new rules, which state that banks will not charge any switch over fee in such cases. As of now, if banks lower the interest rates, they tend to charge a commission fee often worked out as administrative charges.

“This sum is charged towards, reworking the whole re-payment system and also to partly cover the mis-match in cost of funds,” said a banker.

According to Vikas Vasal, personal finance expert and partner KPMG, some banks are already evaluating the option of passing on this benefit. “Customers also need at assess on how much they’ll benefit and should accordingly switch or stay with the existing contract,” he said.

 Article Source: http://www.informationbible.com/article-base-rate-regime-to-defend-interest-of-existing-borrowers-4427.html

 Article Tags: home loan, loans, retail loans, sbi, state bank of india, loans

Add new Comment

Your Name *
Your Email: *
Your Comments: *
Enter Validation Code: *

• Latest Finance Articles
• More from Hardeep