Home Loan provider / Banks no more can charge interest to their Whims and fancies

homeloanBy Dr Sanjay Chaturvedi, LLB PhD

By Accommodation Times Bureau

Reserve Bank of India in its committee headed by Dr Janak Raj has suggested that interest rates charged by banks and NBFCs on loans be pegged to any one of the three benchmark rates such as T-Bill, Certificate of Deposit rates and RBI’s Repo Rates. The committee also suggested that a ban on banks charging a conversion fee whenever the bank resets the rate of interest. Which means, whenever the floating rates were changed due to benchmark rate of RBI, banks and NBFCs use to charge customers the Conversion fees.

Inspite of repeated request by RBI to housing Finance companies, when REPO rates were slashed by the apex bank, the benefit of lower interest rates were never passed on to the end borrower. RBI had liberalized its benchmark rate and Prime Lending Rate (PLA) and asked banks to align interest rates accordingly but Banks, in spite of lower rates in the economy, kept the home loan interest rates as high as 13 to 15% when the REPO rates and Reverse REPO rates were slashed and averaged at 6%.

Govt also open the door of External Commercial Borrowing in housing finance sector. In international market the home loan rates are averaged at 2 to 4%. These funds were brought in India at 4% and deployed at 12% to have maximum profits.

RBI date show that between Dec 2014 and Oct 2016, a month before demonetisation, bank’s Base Rates on an average reduced by 0.61% when the policy rate was lowered by 1.75% point.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said “The decision of the Reserve Bank of India’s monetary policy committee to keep the repo rate unchanged has been on expected lines. The present macro-economic situation in terms of higher than expected inflation and unexpected spike in fuel prices the industry was not expecting a rate cut. Having said that the marked slowdown in the real estate sector that started with the demonetisation last year and perpetuated in the wake of some structural reforms such as the Real Estate (Regulation and Development) Act, 2016 and the Goods and Services Act (GST) is expected to prolong. However, a cut in the policy rate could have helped stimulate growth and demand.”

Initially, banks were open to decide their own interest rates but now since these three benchmark rates will arrest these profit mongers who are charging whopping high interest rates without any checks and balances. Even a reduced REPO rates and Reverse REPO rates are not giving them any reason to reduce it.

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