The Reserve Bank of India (RBI) seems to have succeeded in persuading the banks to pass on the benefits of cheaper floating loans to the existing customers who have been paying the higher rates. Major banks like ICICI Bank, Standard Chartered Bank and State Bank of India are now allowing their customers ? on a selective basis ? who were paying higher floating rates to switch over to new cheaper rates.
The banks are now allowing their existing customers to shift to the cheaper floating rates with a small penalty where the customer has to pay a switching fee which is calculated on the basis of 1% or 0,5% of the loan outstanding. Though the banks confirmed the development, they said they are doing on a very selective basis.
Banks have written letters to customers to avail of such switching scheme by March 31. “If a customer wants to switch over to the new cheaper rates which are offered as a mix of both fixed and floating, we are allowing them,” said a banker at a large private sector bank who refused to be quoted. However, he said the bank wouldn?t publicise the fact as such an exercise if availed by a large number of customers would disturb the asset-liability position of the bank.
The contrast between the old and new rates became glaring last year when the liquidity situation substantially improved and banks started soliciting customers at teaser rates of 8-8.5%. Even those consumers who had opted for floating rate did not get the benefit of lower rates in the last year-and-a-half.
In teaser rates, banks kept the interest rate fixed between 8-8.5% for the initial period of a loan and then moved to a floating rate structure.
In a letter issued by RBI?s customer service department to the Indian Banks’ Association on January 22, the central bank raised issues such as discriminatory pricing by banks for old and new customers and had asked why new home loan seekers were offered lower interest rate but the same did not apply to existing borrowers. The RBI had termed such discriminatory practices by the banks were against the principle of basic banking as a utility.
In recent weeks, RBI deputy governors K C Chakrabarty had publicly expressed concern over the issue and had said, ?Let the banks have teaser rates, but why teasing only new customers. They should allow benefits of low rates to the existing customer also?. However, banks had defended their decision by taking a stand that it was not possible to lower the rates for existing borrowers since the loans were disbursed when the cost of funds was higher. With FE inputs
Bank chiefs to meet RBI governor on April 5
Mumbai: Top bankers are meeting RBI governor D Subbarao on April 5 to discuss the liquidity and interest rate issues. Other macroeconomic issues, including credit and deposit growth, inflation and economic growth will also be discussed at the meeting. They expect the central bank to raise the repo and reverse repo rate in the policy ? to be announced by the RBI on April 20 ? to curb surging inflation expectations. ?I expect further hike in key rates to check inflation,? said AC Mahajan, chairman & managing director, Canara Bank. However, bankers have said they will wait for the RBI?s annual monetary policy to decide on hiking interest rates. ENS