Saturday, June 13, 2009

A bank cannot offer differential rates for old and new customers if both have floating interest rate - RBI Deputy governor

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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  1. I am in Texas & here I can buy 18000 sq. ft. plot with 2500 sq ft house with 1000 sq ft swiming pool for about Rs 1 crore. Compare this with Pune at income level, Pune RE is expensive. After all RE is global business run on local issues. Here one home in every 10 is on sell & it is visible due to extensive use of IT. While due to lack of visibility I can't say similar stat about Pune.

  2. Yes, i agree with you! Pune real estate is very expensive. Rs. 3,500 to 4,000 per sq.ft. on carpet area basis is an exorbitant property rate.

    I would like to add to your observation about real estate business.

    In India, real estate is a "local business" which runs on global funds.

    These global business earn more profits in India by selling property at a higher rate.

    And in your country, since they can't sell at higher rate, they go for sub-prime scams and earn good profits.

    Not only because of IT but because of the sub-prime crisis people are thrown out of their homes and houses are on line for sale.

    Am i right? This what i have read in the media. Please, correct me if i am wrong.