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| But RBI now wants teaser rate schemes for all |
| BS Reporter / Mumbai Feb 06, 2010, 00:07 IST |
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Teaser interest rate schemes might have drawn flak from the central bank earlier but the Reserve Bank of India (RBI) now wants banks to extend fixed-cum-floating rate home loans to everyone.
“We have no concern on teaser rates...You (banks) tease both new and old customers,” RBI Deputy Governor KC Chakrabarty said on the sidelines of a seminar today.
Last month, another Deputy Governor, Usha Thorat, had asked banks to undertake proper due diligence before extending such loans. “In the area of housing loans, teaser rates are increasingly being offered, which is a cause for concern. I hope banks are ensuring that borrowers are aware of the implications of such rates and the appraisal takes into account the repaying capacity of the borrowers when the rates become normal,” she said.
Chakrabarty’s statement comes amid demands that benefits of lower interest rates be passed on to existing customers, too. Bankers, however, said it was difficult to do so, as interest rates were linked to cost of funds at the time of sanctioning the loan. A senior State Bank of India executive said it was not feasible to give special rates to existing borrowers. “This will put pressure on interest margins and hit profitability. The cost of funds prior to September 2008 was high. It has come down only recently,” said the executive.
SBI was the first bank to launch a fixed-cum-floating rate scheme. While HDFC initially termed it a gimmick, it has since launched a similar scheme.
On the Competition Commission of India’s intervention on banks charging high loan pre-payment penalty, Chakrabarty hinted that RBI was unlikely to intervene.
With RBI announcing a 75 basis points increase in the cash reserve ratio, Chakrabarty said, he expected “mis-pricing” of short-term corporate loans to get corrected. “Overall interest rates will remain the same,” he said.
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