RBI asks banks to offer choice to old home loan borrowers under base rate

All the banks will be switching to base rate system from July 1, 2010, and RBI has already made it clear that the existing home loan customers should also be offered an alternative either to continue with their old home loan rates or move to new rates decided by the base rate system. It is believed with the introduction of base rate system old home loan borrowers might also get a chance to negotiate for a lower interest rate as banks will be re-fixing their lending rates once the base rate sets in.

Most of the public and private sector banks are expected to re-price their retail loans at 1-2% points higher than the base rate to remain competitive.

According to the State Bank of India official, “The new customer may enjoy rates in the region of 9-10%, while existing customer will still be paying 1-2% below the existing prime lending rate which for some banks is as high as 13.75%”. As per the new system of lending, the banks are likely to keep the base rate low so as to keep hold on clients and also attract more clients in the competitive atmosphere.

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

From Banks side, up till now, no clarification has been given whether they will be offering the benefit to the old customers. According to an official of a private bank, “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%) rebate”.