The existing borrowers can cheer now, as under the ‘base rate’ regime, to be effective from July 1, 2010. It is reported that the Reserve Bank of India, in its guidelines on the ‘base rate’ (the new benchmark that banks will use to price loans), has made it clear that any change in the base rate will apply to new as well as old customers. If you thinking of shifting your home loan account to another bank/HFC. Hold on till July 2010, when the ‘base rate’ regime starts and you may get an opportunity to shift to the ‘base rate’ without spending any amount. It is hoped that the ‘base rate’ system will enhance transparency in lending rates and usher a new beginning in the financial system of the country.
One of the major grouses of existing home loan borrowers is that they continue to pay higher interest, while banks and Home Finance Companies (HFCs) are offering much lower interest rates to new customers. The existing borrowers can cheer now, things are expected to change for the better. The ‘base rate’ system would be applicable to all banks and as such the housing finance regulator (National Housing Bank) may issue separate guidelines for home finance companies (HFCs) to ensure transparency in fixing interest rates on home loans.
Under the ‘base rate’ regime, the best part is banks will not be allowed to offer loans at interest less than the base rate fixed, which will have to be reviewed at least once in a quarter. For existing borrowers, banks will have to provide an option to switch over to the new system before the expiry of the existing contracts, on mutually agreed terms. However the RBI has made it clear that the bank cannot charge any switch-over fee for converting an existing loan from BPLR to the ‘base rate’ system.The ‘base rate’ may vary from one bank to another as RBI has allowed banks to choose any benchmark to arrive at the base rate for different loans, but the factors considered to arrive at the rate will have to be transparent and should be disclosed to the public.
Source: The Hindu
