Any reduction in interest rate costs should be passed on evenly to all borrowers:Newly-appointed Reserve Bank of India deputy governor KC Chakrabarty has indicated that existing borrowers with floating rate loans should pay the same rates that are charged to new borrowers.
Speaking to ET soon after taking charge, Mr Chakrabarty said:
“A bank cannot offer differential rates for old and new customers if both have floating interest rate.” He added that the rate should be same for old and new customers in line with international best practices.
Always better terms for new borrowers:In practice, banks have always extended better terms for new borrowers by varying the spread between the interest rate on the loan and the benchmark prime lending rate (BPLR).
Bankers have argued in favour of this flexibility stating that this allows them to pass on the benefit of lower incremental cost of funds to new customers without waiting for their portfolio costs to come down.
Forcing banks to match rates for existing and new borrowers would mean that lenders cannot come out with any special scheme.
In the past, KJ Udeshi, chairperson, the Banking Codes and Standard Board of India, too, had indicated that any reduction in interest rate costs should be passed on evenly to all borrowers.
To read more, please, visit - The Economic Times
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