ICICI Bank lowers EMIs for home loan on customer feedback

ICICI Bank, is India's second biggest bank, and was among the first players to cash in on the retail loan boom and accounts for nearly one-third of the market, has announced to lower the equated monthly installments (EMIs) for a large number of its borrowers by raising the tenure of their home loans.

Bank has sent letter to borrowers explaining that the step taken is a "customer-friendly gesture" in response to customer feedback.

Earlier the bank had raised the benchmark reference rate or the prime lending rate for floating rate borrowers in February and March 2007, following which many borrowers are paying higher EMIs.

In the letter it was stated, "Subsequently, we have received a lot of feedback from customers that they would prefer to increase the tenure rather than increasing the EMI."

The offer was open from April.

Verifying this, a senior bank executive said, "Borrowers with a good track record have been given the option based on the feedback received from some of them. Borrowers also have the option to pay the EMI that they have been paying and not opt for a longer tenure."

The bank offer has come at the time when most of the sectors like information technology and even financial services are seeing lower increments this year.

Meanwhile the bank, has expressed its move as routine and the executive said, "There are many sectors that are doing better. The Sixth Pay Commission recommendations may be implemented this year. The economy is stable. What you are seeing is some precautionary check on spending. But we have not seen any impact as people were paying the higher EMI. For everyone, a home loan is top priority when it comes to repayments."

Although this year, most of the banks had reduced interest rates on indication from the government, but ICICI Bank did not cut rates.

Due to which the interest differential between an ICICI Bank mortgage and a home loan offered by a public sector had increased forcing some borrowers to shift to players that charged lower interest.

The ICICI Bank executive clarified that the move is not aimed at reducing the EMI differential.

The executive explained, "During a period of 18 months, the interest cost went up 350 basis points and what you saw in February-March this year was a 25-50 basis point reduction. That does not affect a borrower since they have to pay a prepayment charge to go to a new lender".