Mumbai: Nudged by the Reserve Bank, banks have begun passing on the benefits of cheaper floating rate loans to their existing customers.
Banks with substantial retail portfolios, like ICICI Bank, State Bank of India and even foreign banks like Standard Chartered, are now allowing their customers who have been paying higher floating rates to switch over to the new, cheaper rates.
These customers have to pay a small penalty, mostly 1% to 0.5% of the outstanding loan, for the switchover.
Though all the banks FE contacted confirmed the development, they said it was being done selectively. Many customers have received letters from the banks asking them to avail of the facility 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 didn’t want to be named.
He confided that the bank wouldn’t publicise the facility, on fear that large-scale switchovers would disturb the asset-liability structure of his bank. While there are no figures to indicate the extent of the switchover, bankers said the numbers were substantial.
The contrast between the old and new rates became glaring last year when the liquidity situation substantially improved and banks started soliciting new customers at teaser rates of 8-8.5%. This, however, kept out existing consumers who had opted for floating rates earlier; they were not offered the lower rates in the last one-and-a-half year. These customers, despite availing of the floating rates, paid in an interest rate band of 10-11%.
But in teaser rates, the banks kept the interest rate fixed between 8% and 8.5% for an initial period, moving on thereafter to a floating rate structure.
A letter issued by RBI's customer service department to the Indian Banks' Association on Jan 22 noted it as discriminatory pricing by banks for their old and new customers. It asked why the new home loan seekers were offered a lower interest rate but the same did not apply to existing borrowers.
The central bank had termed such discriminatory practices by the banks were against the principle of basic banking as a utility.
However the banks have 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. Banks had said they...were unable to cut floating rates for existing customers because their cost of the funds had not fallen....
Banks with substantial retail portfolios, like ICICI Bank, State Bank of India and even foreign banks like Standard Chartered, are now allowing their customers who have been paying higher floating rates to switch over to the new, cheaper rates.
These customers have to pay a small penalty, mostly 1% to 0.5% of the outstanding loan, for the switchover.
Though all the banks FE contacted confirmed the development, they said it was being done selectively. Many customers have received letters from the banks asking them to avail of the facility 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 didn’t want to be named.
He confided that the bank wouldn’t publicise the facility, on fear that large-scale switchovers would disturb the asset-liability structure of his bank. While there are no figures to indicate the extent of the switchover, bankers said the numbers were substantial.
The contrast between the old and new rates became glaring last year when the liquidity situation substantially improved and banks started soliciting new customers at teaser rates of 8-8.5%. This, however, kept out existing consumers who had opted for floating rates earlier; they were not offered the lower rates in the last one-and-a-half year. These customers, despite availing of the floating rates, paid in an interest rate band of 10-11%.
But in teaser rates, the banks kept the interest rate fixed between 8% and 8.5% for an initial period, moving on thereafter to a floating rate structure.
A letter issued by RBI's customer service department to the Indian Banks' Association on Jan 22 noted it as discriminatory pricing by banks for their old and new customers. It asked why the new home loan seekers were offered a lower interest rate but the same did not apply to existing borrowers.
The central bank had termed such discriminatory practices by the banks were against the principle of basic banking as a utility.
However the banks have 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. Banks had said they...were unable to cut floating rates for existing customers because their cost of the funds had not fallen....
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