Uniformity in Rate distribution of Old & New Home Loan Customers

Banks are not agreeing to uniform rate for old and new home loan borrowers. RBI has been after the banks to give the old borrowers the benefits of the new rates but banks refuse to budge from their set rates claiming cost mismatch. They are extending lower home loan rates only to rope in the new potential home loan seekers.

RBI deputy governor K.C.Chakrabarty reminded bank CEOs about their concern on teaser rates and inaction on the banks’ part, to distribute the benefits of the new home loan interest rates uniformly among all their borrowers (old and new). It is common practice that bank is slow to pass on a discounted rate but quick to increase the loan term or EMI with increase in rates.

Presently, old home loan borrowers are paying more than new ones as their interest rates are linked to the BPLR (benchmark prime lending rates) which is prevailing from April 2009 by most banks. After 2009 banks came up with new schemes for home loans which promises lower fixed interest rates (in first 1-3 years depending on bank to bank) rendering the old loan borrowers feel letdown.

Bankers have explained that since they had obtained funds at a higher cost the interest charges on earlier loans cannot be reduced and the new loans have a lower rate due to the reduction in the incremental cost of funds since then. RBI has pointed out that with the reduction in the incremental cost brought down their average cost and thus they could extend this benefit uniformly among old and new customers alike. Bankers even voiced their concern that same rate to all customers could result in a legal dispute as each customer has separate contracts with the bank. Few even said that their financials could get strained.