The base rate may be working in favour of customers as discrimination between old and new customers have come down after the system was introducedby the RBI three years back, notes a column by Harsh Roongta, CEO,Apnapaisa, in Business Standard, on Monday.
Base rate is the rate below which banks are not allowed to lend, and once banks reduce this rate, rates across their products fall.
Your home loan interest rate is made up of two parts first the banks base rate and a spread over that. So, if your home loan interest rates is 9.95 percent and the banks base rate is 9.7 percent, then the spread here is 0.25 percent. Now assuming that the over all market rates fall by 0.10 percent, then banks have a choice to either reduce the base rate to 9.6 percent or simply reduce the spread.
If the bank reduces the base rate, all customers--existing and new--will get the benefit. If the chooses to reduce only the spread, only new consumers will benefit.
According to the column, banks have in the past reduced spread more than base rates. For some banks, spreads have been reduced to as less as zero percent. Which means, any further reduction of rates will only benefit customers. Unlike the former BPLR system where new borrowers got much better rates than existing borrowers, with the base rate system, the maximum discrimination between old and new borrowers is of 0.25 percent.
While this is good news for those who have taken home loans from banks, things have remained unchanged for those who have taken home loans form HFC, since the RBI regulations do not apply to HFCs.
Read the full Business Standard column here.
Updated Date: Dec 21, 2014 03:03:52 IST