To decide on the extension of special home loan scheme today
Banks geared up to enter the new lending regime, Base Bank Rate, replacing the Benchmark Prime Lending Rate (BPLR) from July 1, as the country's premier bank and largest public sector lender State Bank of India (SBI) fixed its base rate at 7.5 per cent.
“State Bank of India has fixed the base rate at 7.50 per annum with effect from July 1, 2010,” the bank said in a regulatory filing to the Bombay Stock Exchange (BSE).
Union Bank of India has also informed the BSE that in terms of the guidelines issued by the Reserve Bank of India (RBI) on April 9, it has fixed the Bank Rate at 8 per cent. It is in the process of arriving at the interest rate applicable on various loan products of the bank. It also stated that the Base Rate would be applicable to all those new loans sanctioned on or after July 1, 2010, as well as those renewed after that.
Punjab National Bank has informed the BSE that the bank's board has fixed the Base Rate at 8 per cent. The Base Rate has been arrived at by taking the average cost of deposits of the last quarter as the benchmark. The Card Rate under any lending scheme of the bank would be the sum of Base Rate and the spread, the bank added.
Indian Bank, for its part, has set the Base Rate at 8 per cent.
State Bank of Travancore, one of the six associate banks of SBI, has informed the BSE that it has decided to fix the Base Rate at 7.75 per cent.
Under the existing BPLR, banks were offering sub-prime loan lower than market rate to companies with high credit worthiness. Through the base rate regime, the RBI stipulated that banks stick to a declared lending rate below which no bank can lend. Other lenders, including private sector banks, are likely to fix their base rate closer to that of SBI to stay competitive in the corporate loan market.
According to a FICCI survey, the new system is transparent and the small borrower should be able to ‘negotiate the rates' to their advantage. As the base rate of all the banks would be publicly available, companies will be able to compare the rates charged by banks; hence the skill to negotiate will have a greater role to play.
In addition to promoting transparency, the Base Rate methodology does allow banks to charge borrowers Base Rate plus borrower-specific charges, which will include product-specific operating costs, credit risk premium and tenor premium. Besides concessions are made in certain cases like education loans, credit to small borrowers (up to Rs. 2 Lakh) and loans below one year.
The bank said it would take a decision on the continuation of its special home loan scheme or ‘teaser loan', under which it offers 8 per cent loan to its customers, on Wednesday.
“The department is working on that and we will take a decision by tomorrow [Wednesday],” Chairman O. P. Bhatt told reporters here on Tuesday.
Under the SBI scheme, for the first year, home loan would carry 8 per cent interest rate and for the second and third years it would attract 9 per cent. From the fourth year onwards, home loans up to Rs. 50 lakh would be charged 9.25 per cent interest rate while higher loans would carry 9.75 per cent interest rate. Mr. Bhatt said the bank's special home loan scheme, even if continued, did not violate the RBI norms on base rate but the bank was yet to take a call on whether to extend the scheme or not.
SBI had extended the special scheme till June 30 owing to huge demand from its customers. The scheme was actually supposed to end by April 30. Teaser rate scheme provides concessional home loans to borrowers in the initial years, after which interest rates increase to align with prevailing market rates. The RBI had openly expressed its concern about teaser loans as it wanted banks to extend the benefit of lower rates to existing customers as well.