Transparent pricing of loans

MONETARY POLICY MID-TERM REVIEW 2007-08/ SUPERVISION AND REGULATION

In a move to make pricing of loans more customer-friendly, RBI has advised the banks to be more transparent and fair in fixing and revising interest rates on housing loans.

Y V Reddy, governor, RBI, said, "On an informal level I have told bankers that on repricing of housing loans, there has been a lot of criticism. And we may have to take a strong view if banks do not ensure fair contracts and fair pricing."

The immediate reason for this seems to be the fact that banks have raised their floating home loan rates by as much as 4 percentage points over the last one year. Fixed rate home loans carry a reset clause after two-five years depending on the tenure of the loan.

"We have got certain complaints about non-transparent pricing that is why we want banks to assure us that it is not the case.

Even fixed rates, apparently have a clause, which says it may be changed if something happens. So the so-called fixed rate is not all that fixed. Hikes have to be reasonable. That is what we want," said Reddy.

Though some of the banks have reduced rates as a part of the festival offers, the apex bank has pointed out that the cuts are only for the new customers.

Currently, the existing borrowers have the choice to either move to another bank offering lower interest rates or pay a charge and close their existing loan account and open a new loan account with the same bank.