rbi.

Maha requests RBI to grant easy home loans to poor

by Paul Joseph September 6, 2010

Mumbai, Sep 3 (PTI) Maharashtra Government has requested the Reserve Bank of India to come up with guidelines for granting easy home loans to financially weaker sections who are denied the facility by the banks.It was suggested by Chief Secretary J P Dange that the banks refuse to sanction home loans for poor people and prefer disbursing it to the middle and working classes. Therefore it was necessary to take some initiatives for the poor, an official from Housing Department said.”The CS has requested the RBI to set up guidelines before the banks for giving home loans to the poor in easy instalments,” the official said.Stretching the same issue further for small farmers, Dange said the banks should also not restrict themselves only for big farmers while distributing crop loans.The farmers benefited from loan waiver scheme should also be entitled for the crop loans and small farmers should be encouraged for the same, Dange proposed in a meeting held here to review distribution of loans under various Government schemes. http://ibnlive.in.com/generalnewsfeed/news/maha-requests-rbi-to-grant-easy-home-loans-to-poor/291033.html Filed under: Home loans Tagged: Home loans , Maharashtra Government , RBI

Tagged as: banks, government, home-loans, housing, india, official, rbi., reserve, reserve-bank

0 comments Read the full article →

Rise in base rate won’t affect your repayments

by Paul Joseph August 24, 2010 Uncategorized

MUMBAI: The Reserve Bank of India, has said a bank will have to honour a fixed rate contract, even if interest rates move up in future. The clarification has removed doubts that some banks had over introduction of fixed rate home loans. Customers of some banks feared that if the lender’s base rate rose above the contracted fixed rate, the bank might increase the loan rate citing RBI guidelines even though the loan was termed as ‘fixed rate’. The RBI has said no loan can be advanced below the new benchmark rate. Banks like Punjab National Bank, State Bank of India and ICICI Bank are offering fixed rate home loans, but customers were worried that they may be charged a higher rate of interest rate if the base rate goes up since no bank is allowed to lend below the base rate. However, RBI has said at the time of contracting a fix rate loan if the lending rate (under the special scheme) is higher than the base rate, banks do not need to charge higher rate even if the lenders raise their base rate in future. For instance, PNB has decided to offer a fixed rate loan of 8.5% on home loan for the first three years. In case PNB decides to raise its base rate, which is now at 8-9% after a year, RBI has said they cannot charge customers (who have opted for 8.5% three-year fixed rate scheme) an interest rate more than 8.5% in the first three years. SBI scheme offers 8% for the first year and 9% for the second and third year. While SBI’s scheme is up to September, PNB’s scheme is till December 10. However, RBI has also told banks that if they hike or lower base rate, that increase or cut in rates will have to be passed on to the new customers under the special home loan scheme. Therefore, if PNB raises its base rate, to say 9% in October, those special schemes cannot continue at 8.5%, however, the customer who have already availed loan at a fix rate of 8.5% before October, need not pay more. Sources from the industry say PNB had asked for a clarification from RBI on this issue since they recently launched the festive offer and were keen to offer a fix rate scheme. The PNB fix rate offer is on loans up to Rs 50 lakh and from the fourth year onwards, the bank will charge home loan rate that is prevailing at that point of time for all its customers. Source:http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/home-loans-news/Rise-in-base-rate-wont-affect-your-repayments/articleshow/6423649.cms Filed under: Home loans , Mumbai Tagged: Home loans , Icici Bank , Mumbai , PNB , RBI , SBI

Tagged as: base, india, lending, loan, mumbai, punjab-national, rate, rbi., sbi, time

0 comments Read the full article →

RBI Likely to Raise Key Policy Rates

by Paul Joseph July 26, 2010

Faced with the menace of double-digit headline inflation, the Reserve Bank is likely to increase key policy rates by at least 25 basis points in its first quarterly review of the monetary policy on Tuesday, say bankers. “I think there could be a small hike in the repo and reverse repo rate of say 25 basis points,” HDFC managing director Renu Sud Karnad told PTI. High inflation rate may prompt RBI to tighten money supply by raising both short-term lending (repo) and borrowing (reverse repo) rate on July 27, say bankers. “There is a clear bias for policy rates to move up for the reason that inflation is still very high and inflationary expectation is to be contained. The bias is going to be upward,” Union Bank of India chairman MV Nair said. “At that point in time, if the funding cost goes up, then the base rate will also go up. During the year, there is a clear bias for interest rates to move up,” he added. Punjab National Bank chairman KR Kamath said whatever decision RBI takes, the banks will respond accordingly. Kamath further said if RBI raises the cash reserve ratio, that would put pressure on cost of funds. Earlier this month, RBI had raised the repo and reverse repo rates by 25 bps to tame inflation. Inflation is still in double-digits, led by high food prices and stood at 10.55 per cent in June. But food inflation eased marginally to 12.47 per cent for week ended July 10 from 12.81 percent previous week. RBS managing director and head of markets Ramit Bhasin said RBI is likely to hike its short-term lending rate by 0.5 per cent to 6 per cent and short-term borrowing rate by 1 per cent to 5 per cent through 2010. “As we go forward, there would be higher capital inflows and the current liquidity crunch will ease much sooner than expected. According to our estimates, RBI is likely to up repo by 0.5 per cent and reverse repo by 1 per cent by December,” Bhasin said. Kotak Mahindra MF’s Lakshmi Iyer said it is widely expected that RBI is going to hike rates by 25 bps. Echoing similar view, Crisil chief economist DK Joshi said the focus for RBI in the near term would remain curbing inflation. “We expect RBI to hike the repo and reverse repo rates by 25 bps at on July 27,” Joshi said.

Tagged as: banking and finance, kotak-mahindra, punjab-national, rbi., real estate companies, reserve, reserve-bank

0 comments Read the full article →

Banks ask RBI to Clarify Pricing of Old Home Loans

by Paul Joseph February 24, 2010

Banks have sought clarity from RBI on pricing of old home loans once the new ‘base rate’ regime sets in. Loan agreements, stretching for 15-20 years, have no provision for replacing the prime lending rate (or PLR) — the anchor interest rate to which the floating rates are linked. However, RBI has told banks to start benchmarking loans to a ‘base rate’ instead of the PLR from April 2010. The base rate is to be calculated on a cost-based formula and would be lower than the PLR, while banks are free to charge a risk spread over the base rate they cannot lend below the base rate. Significantly, RBI has directed banks that at the time of loan renewals or resetting interest charges, banks should take the ‘base rate’ as the anchor rate. Since home loan agreements, like other loan deeds, are legal documents, bankers fear that many retail borrowers will resist a switchover from PLR to ‘base rate’ and signing on a new agreement. Bankers will also have to grapple with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Secondly, since the base rate is a floor rate, there is a possibility that interest rates on some home loans may have to be hiked if the base rate of the bank is higher than existing loan rates. At least, three senior bankers told ET that there is ambiguity on the matter and they are seeking clarity from RBI. “The moot point is the floating rate home loan do not have renewal clause, making it difficult for banks to link these loans to base rate. Alternatively, banks can give customers an option to shift to base rate. But, if customers have availed of loan at rate lower than the base rate, they may resist shifting to base rate. Banks also cannot force base rate on them as it’s a legal document (loan agreement).” The other alternative would be to maintain two parallel rates —PLR and base rate till the maturity of all old loans in their book. However, bankers feel this move may not go down too well with RBI. The central bank aims to do away with discriminatory prices for old and new customers. As of now, all old home loan customers are paying higher rate interest compared to new home loan borrowers, even when both of them have taken floating rate loans. Banks say they have priced new loans at cheaper rate because their incremental cost of funds came down. But RBI has urged that reduction in incremental cost also results in reduction in overall cost of funds and thus the benefit of lower rate should be passed on to old borrowers as well. Thus if BPLR continues to be anchor rate for old home loans, it may negate the propose of introducing base rate. “In case of short-term loans given to corporates, individuals and small businessmen, banks may have to keep alive its BPLR. But whether it can be kept active for home loan which has a 15-year maturity is yet not clear,” said a senior banker. Also, one of the key reasons for RBI to introduce base rate was to improve the transmission of police rate to the credit market. Very often, RBI has observed that the reduction in policy rates has not translated in banks lowering lending rate by the same quantum. In the policy document of January 2009, RBI governor, D Subbarao pointed out: “While changes in RBI’s policy rates were quickly transmitted to the money and government securities markets, transmission to the credit market was slower. Evidently, the transmission is still in progress.” Between October 2008 and December 2009, RBI substantially reduced policy rates — the repo rate by 425 basis points and the reverse-repo rate by 275 bps. CRR was also reduced by 400 basis points of NDTL. But reduction in the range of BPLRs was 125-275 basis points by public sector banks, followed by 100-125 basis points by private banks and 125 basis points by five major foreign banks.

Tagged as: base, book, credit, loan, money, rbi., real estate, real estate india

0 comments Read the full article →

Major Banks Reject RBIs Proposal of Uniform Home Loan Rates

by Paul Joseph January 16, 2010

Driven by angry mortgage borrowers, RBI has once again nudged 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. 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. Bankers present in the meeting argued that since the incremental cost of fund had softened, they could charge lower rates only to new customers while old customers had to pay more as old funds were raised at a higher cost. Countering this, the regulator said reduction in incremental cost of funds also brings down the average cost of fund for a bank which should then be in a position to offer the new, lower lending rate to old as well as new borrowers. Some banks said offering the same rate to all could spark legal feuds since interest spreads (over or below the PLR) varied from customer to customer, each of whom sign separate loan contracts with banks. Besides, Mr Chakrabarty, RBI deputy governor Subir Gokarn and executive director Deepak Mohanty were present in the meeting. Among bankers, the meeting was attended by SBI chairman OP Bhatt, ICICI Bank CEO Chanda Kochhar, Canara Bank CMD AC Mahajan, Bank of Baroda CMD MD Mallya, Punjab National Bank CMD KR Kamath, Union Bank of India CMD MV Nair, MD of HDFC Bank, Aditya Puri, India CEO of Standard Chartered Bank, Neeraj Swaroop and Citibank India CEO Mark Robinson. 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. From April 2010, banks will have to pay interest on savings deposits on a daily basis instead of the current practice of paying interest on the lowest balance in the last 20 days of the month. Banks told RBI that to protect their margin (the spread between the cost of funds and yield on advances), they should be either allowed to give a return lower than the fixed 3.5% savings account interest or stick to the system of paying on the lowest balance. In this context, banks once again made a pitch for a return on the cash reserve ratio (CRR) – the slice of customer deposits that banks have to park with RBI. Currently, there is no interest on CRR which serves as a tax on lenders. 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.

Tagged as: base, central, cost, home-loans, punjab-national, rbi., real estate

0 comments Read the full article →