|
| Banks want timeline for base rate switch by customers |
| Joydeep Ghosh & Abhijit Lele / Mumbai Jul 01, 2010, 03:50 IST |
|
With the base rate regime kicking off from tomorrow, banks are looking at allowing customers to switch to this new loan pricing system from the existing one within a specific time-frame.
 State Bank of India (SBI) Chairman Om Prakash Bhatt said the bank had approached the Reserve Bank of India (RBI) for introducing a sunset clause making it compulsory for all customers to shift to the system with a specified period.
Banks would like the process to be over within a stipulated period primarily for administrative reasons. RBI, in its April 9 guidelines on the base rate, proposed that banks should allow customers switch from their existing rates to the base rate without any charge.
“Existing loans based on the BPLR system may run till their maturity. In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over,” the guidelines said.
Andhra Bank chairman and managing director R S Reddy said, “We have requested RBI to give some time frame to switchover to the base rate regime. The issue (of waiting) is more to do with the term loans including, home loans where banks cannot unilaterally make a change. So technically, the waiting period in such cases for migration is open-ended.”
Banks feel that administering two rates – base rate and prime lending rate – will be a cumbersome process. Hence, they would prefer a specified timeline for customers to change over to the new system.
S Govindan, general manager, personal banking and operations, Union Bank said, “Banks need to fix a switching period, say one to two months, for existing customers. You cannot give them an indefinite window.”
However, switching to base rate will not change the loan rate per se. For instance, if one had borrowed 5 years back and the existing rate is at 10 per cent (say, 13 per cent PLR minus 300 basis points), they will continue to be at the same rate. Only, the calculation will change.
When shifting to base rate of, say 7 per cent, the bank will add 300 basis points and continue to charge him at 10 per cent. But the shifting will ensure that if the interest rate falls, the customer will get the benefit immediately. And this might be a big help because banks have to revise the base rate every quarter.
United Bank of India chairman and managing director Bhaskar Sen said initially, the Kolkata -based bank, intends to give six months for switchover to base rate from BPLR system. “Since these are early days, the banking system would be in learning phase till December. There will be clarity only after that.”
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
