RBI revises calculation for base rate
At present, the interest rate paid by a bank's home loan borrowers ranges between 10.25% and 11.25% because of the bank selectively lowering rate for new borrowers by reducing the spread instead of lowering the base rate
Jan 20, 2015
Source : The Times of India


MUMBAI: The Reserve Bank of India has revised norms for calculation of the base rate - the benchmark set by banks to reprice floating rate loans in line with the market rates to ensure that banks pass on the drop in cost of funds to borrowers fairly. The central bank has also said that banks need to come out with board-approved policies which spell out how the spread over the base rate is decided and that the spread cannot be changed indiscriminately.

What the new rules mean is that banks cannot selectively lower rates for new customers by changing the spread - the difference between the benchmark rate and the rate charged to customers. "Bank's internal pricing policy must spell out the rationale for, and range of, the spread in the case of a given category of borrower, as also, the delegation of powers in respect of loan pricing. The rationale of the policy should be available for supervisory review," RBI said in its circular.

RBI's directives come at a time when many large public sector banks are under pressure from the RBI to bring down their base rate in response to the cut in repo rate by the RBI. In his previous policy statement last month, RBI governor Raghuram Rajan had lamented the unwillingness of banks to pass on lower interest rates.

"The weighted average call rates as well as long-term yields for government and high-quality corporate issuances have moderated substantially since end-August. However, these interest rate impulses have yet to be transmitted by banks into lower lending rates," Rajan had said. He added that because of this lack of transmission, large corporations are moving away from loans and are turning to commercial paper and issuance of securities in India and abroad to raise cheap funds.

At present, the interest rate paid by a bank's home loan borrowers ranges between 10.25% and 11.25% because of the bank selectively lowering rate for new borrowers by reducing the spread instead of lowering the base rate. In future, such selective reduction would become difficult as banks would have to explain why within the same category of borrowers there are different rates.

The RBI has also sought to protect borrowers by directing banks to ensure that the spread charged to an existing borrower is not increased except if the risk profile of the borrower has worsened or if the tenure of the loan has been extended. "Any such decision regarding change in spread on account of change in credit risk profile should be supported by a full-fledged risk profile review of the customer. The change in tenor premium should not be borrower specific or loan class specific. In other words, the change in tenor premium will be uniform for all types of loans for a given residual tenor," the RBI said.

The only leeway given to banks in revising their spread is when they are extending a loan to a business as part of a consortium.

Latest Realty News

Jan 20, 2015
KOCHI: RBI's repo rate cut of 25 basis points last week will serve as a fillip to automobile and home mortgage markets of Kerala
Jan 19, 2015
NOIDA: In a bid to protect buyers and curb rising incidents of property fraud in Noida and Greater Noida, the UP government plans to make verification of a property mandatory before its registration
Jan 19, 2015
GREATER NOIDA: The Greater Noida Authority has issued notices to 32 housing societies
Jan 19, 2015
GREATER NOIDA: Close to 100 buyers gathered at Paramount's Golfforeste housing society in Greater Noida in protest against ?the delay in completion of their flats
Jan 19, 2015
Pune: The Pune Municipal Corporation (PMC) is all set to launch a 'green rating' system for new constructions in the city
Jan 19, 2015
Bengaluru: An observation in the Comptroller and Auditor General of India (CAG) report of 2010 that the state government should collect rentals from the Karnataka State Cricket Association (KSCA) and Bangalore Golf Club (BGC) for allowing them to use prime land
Jan 19, 2015
Mumbai: Goldman Sachs, Morgan Stanley and JPMorgan, the three bulge-bracket banking groups of the US, are likely to get active in Indian real estate after a long gap
Jan 19, 2015
New Delhi: Backed by funding from Rupert Murdoch-led News Corp, realty portal PropTiger has forayed into secondary market property transactions
Jan 19, 2015
Kolkata: Shib Narayan Das, director of Saradha Realty, was remanded in CBI custody for four days by a city court in connection with the multi-crore chit fund scam
Jan 19, 2015
Mumbai: Prices aren’t holding back anyone who wants to own an upmarket condominium

Latest Realty News Of State

Realty Talk's