With the Reserve Bank of India coming down heavily on commercial banks for discriminating existing customers, banks offering home loans at teaser rates are planning to withdraw the same in the coming month.
Last year, many banks started offering home loans at very low interest, some even as low as 8%, much below their prime lending rate (PLR). This was part of bankers’ effort to woo customers during the economic slowdown. When low interest rate loans were offered, it was presumed that the teaser rate would continue at least for the first two years.
RBI had earlier asked the Indian Bank Association (IBA), which comprises of all commercial banks, the reason for offering low interest loans to new customers, while levying higher rate from existing customers. The first to announce the exit is Union Bank of India, which has withdrawn the special home loan with effect from 15 February 2010.
Indian Bank Association chairman and Union Bank of India CMD M V Nair confirmed RBI’s directive to banks to bring in transparency regarding home loans. He also added that IBA is in agreement with the central bank concerning the need to be non-discriminative to new and existing customers.
Mr. Nair said that UBI would bring down the PLR by about 2%, which would bridge the gap. He said that this would also fit in with the RBI directive to have a common base rate. RBI had earlier asked banks to do away with the PLR system and follow a common base rate system with effect from 1April 2010.
All these changes may result in the loan rate going up to 9% or above.
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