NATIONAL HOUSING BANK AND THE RBI- pass on the benefit of lower interest rates uniformly to all customers
RBI has directed the top banks to charge lower home loan rates to old customers instead of just using the lower interest rates to pull new borrowers. But lenders continued to resist the proposal, citing cost mismatch. The contentious issue cropped up when CEOs of large banks met senior RBI officials on Thursday to suggest possible measures that the central bank could consider for the January 29 monetary policy.
Driven by angry mortgage borrowers, At the meeting, RBI deputy governor KC Chakrabarty reminded bank chiefs that the regulator had earlier voiced its concern over banks’ inability to pass on the benefit of lower interest rates uniformly to all customers. It has been a common refrain among home loan borrowers that while banks are slow to pass on a rate cut, they are quick to hike either the loan term or the EMI (or equated monthly instalments) when rates go up.
Under present circumstances, old borrowers continue to pay more since their rates are linked to the benchmark prime lending rates, which most banks have not changed since April 2009. But since then, banks have come out with lower lending rates and new schemes to target new borrowers, leaving old customers feeling that they got a raw deal.
Some of the bankers took the opportunity to spell out how their financials could come under strain. The state-owned bank chiefs told RBI officials that profits would come under pressure next fiscal due to the outgo on higher salary as well as pay arrears of the last two years. Besides, banks would have to pay higher interests on savings account deposits from April 2010.
Banks asked RBI whether they could amortise the wage payment over five years. As per the agreement between employees and bank managements, banks have to pay 17% higher salary from November 2007, which will translate into a cumulative annual outgo of Rs 4,815 crore for public sector banks.
A CEO of a private bank said in a surplus liquidity condition, RBI’s suggestion —as outlined in the recent report on BPLR that banks should not lend more than 15% of total advances below the base rate — could make it difficult for banks to meaningfully deploy their money. Banks then would be forced to park the surplus with the central bank, said the banker. Responding to this, an RBI senior official said in such circumstances, banks should consider lowering their base rates to manage liquidity. Banks also added that while there was some loan demand from farmers, small businessmen and individual consumers; corporate borrowing was lesser than last year.
The NHB, which is the housing finance regulator, has asked HFCs to ensure that all borrowers pay the same interest rate, irrespective of when the loan was taken.