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Home loan rates slashed by RBI

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Home loan rates slashed by RBI

Last updated: February 12 2013
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  • Home loan rates slashed by RBI

    Just heard the news that RBI has slashed the Repo Rate by 25 basis points.

    This will lead to cheaper lending rates for borrowers as banks will be gearing up for rate cuts. IDBI Bank has cut its rate by 0.25% to 10.25%. Other banks yet to follow.

    Will it be a privilege for ONLY the NEW borrowers or the EXISTING ones as well.

    What is the trend that usually follows in such cases?
  • #2

    #2

    Re : Home loan rates slashed by RBI

    No takers on this one..

    Veterans .Please advise!!!

    Comment

    • #3

      #3

      Re : Home loan rates slashed by RBI

      My loan from IDBI was at 11%; which has not been reduced to 10.75%. Banks usually offer lower rates to attract new buyers, but once you have taken loan from a bank, you are taken for a ride as well.

      Comment

      • #4

        #4

        Re : Home loan rates slashed by RBI

        I am sure there must be several posts on the forum explaining the concept in much more detail but here are the basics.

        If you take a loan based on the "base rate" of the bank, i.e base rate+x then when the bank reduces its base rate it will apply to everyone, new and existing customers
        However if you take it as "PLR - spread", HDFC being the prime example then the bank can change the spread for new customers and old ones might suffer
        Having said that HDFC has reduced its rate by 0.1% for all its customers as per what I read

        Comment

        • #5

          #5

          Re : Home loan rates slashed by RBI

          Welll, you missed a point.

          For Base Rate based regime also, if there is a spread above Base Rate, then the banks can play around with the existing customers by not decreasing the base rate, but just reducing the spread for new customers.


          This is similar to the BPLR based regime, where banks used to reduce the spread rather than reducing BPLR.

          However, in base rate, as the spread is on the positive side [Base Rate + X], you can be sure that at max., you would be paying X rate extra than the new customers. The best workaround would be, talk to the bank executives, make some noise by shooting mails to banks, complaint to Banking Ombudsman, and the bank executives may offer you an option to convert to a scheme where there is no X [in case of base rate]


          Best Regards
          Robin


          Originally posted by sraddha View Post
          I am sure there must be several posts on the forum explaining the concept in much more detail but here are the basics.

          If you take a loan based on the "base rate" of the bank, i.e base rate+x then when the bank reduces its base rate it will apply to everyone, new and existing customers
          However if you take it as "PLR - spread", HDFC being the prime example then the bank can change the spread for new customers and old ones might suffer
          Having said that HDFC has reduced its rate by 0.1% for all its customers as per what I read

          Comment

          • #6

            #6

            Re : Home loan rates slashed by RBI

            Originally posted by ntomer View Post
            My loan from IDBI was at 11%; which has not been reduced to 10.75%. Banks usually offer lower rates to attract new buyers, but once you have taken loan from a bank, you are taken for a ride as well.

            Not possible if your loan was based on bank's base rate. IDBI has reduced its base rate to 10.25.

            Comment

            • #7

              #7

              Re : Home loan rates slashed by RBI

              Originally posted by robin2012 View Post
              Not possible if your loan was based on bank's base rate. IDBI has reduced its base rate to 10.25.
              I am sorry, I couldn't get you.

              Comment

              • #8

                #8

                Re : Home loan rates slashed by RBI

                Originally posted by robin2012 View Post
                Welll, you missed a point.

                For Base Rate based regime also, if there is a spread above Base Rate, then the banks can play around with the existing customers by not decreasing the base rate, but just reducing the spread for new customers.


                This is similar to the BPLR based regime, where banks used to reduce the spread rather than reducing BPLR.

                However, in base rate, as the spread is on the positive side [Base Rate + X], you can be sure that at max., you would be paying X rate extra than the new customers. The best workaround would be, talk to the bank executives, make some noise by shooting mails to banks, complaint to Banking Ombudsman, and the bank executives may offer you an option to convert to a scheme where there is no X [in case of base rate]


                Best Regards
                Robin
                Thanks Robin for the above detailed explanation.

                I am a rookie in these terminologies.

                Can you explain a bit on the following
                1) I understand PLR is Prime Lending rate. What is the difference between BPLR and Base rate. Are they different? I have also heard of RPLR (retail prime lending rate). Are they related?

                2) From your explanation, correct me If I am wrong.
                If the bank reduce the Base rate then it will be applicable to both existing and New borrowers. However, if the bank has made a reduction in Spread that is over and above Base Rate, only the NEW borrowers will be benefited.

                3) When bank reduces spread rather than Base rate than old borrower can get it reduced by making noise? but NOT when the bank reduces BaseRate?

                4) What legal claim (as you said above )can an OLD customer make in order to force the bank to reduce his ROI when there is reduction in Spread by bank ?


                Many Thanks In advance.

                Comment

                • #9

                  #9

                  Re : Home loan rates slashed by RBI

                  Originally posted by robin2012 View Post
                  Welll, you missed a point.

                  For Base Rate based regime also, if there is a spread above Base Rate, then the banks can play around with the existing customers by not decreasing the base rate, but just reducing the spread for new customers.


                  This is similar to the BPLR based regime, where banks used to reduce the spread rather than reducing BPLR.

                  However, in base rate, as the spread is on the positive side [Base Rate + X], you can be sure that at max., you would be paying X rate extra than the new customers. The best workaround would be, talk to the bank executives, make some noise by shooting mails to banks, complaint to Banking Ombudsman, and the bank executives may offer you an option to convert to a scheme where there is no X [in case of base rate]


                  Best Regards
                  Robin

                  You are correct in theory. However the 'x' in most cases is less than 1%.Most banks have an 'x' of around 0.25% for loans upto 25-30L(SBI, AXIS etc.). Not sure if it is possible to get that removed completely. At least I dont know anyone who is enjoying loan at base rate of bank.

                  Comment

                  • #10

                    #10

                    Re : Home loan rates slashed by RBI

                    Originally posted by guptaMan View Post
                    Thanks Robin for the above detailed explanation.

                    I am a rookie in these terminologies.

                    Can you explain a bit on the following
                    1) I understand PLR is Prime Lending rate. What is the difference between BPLR and Base rate. Are they different? I have also heard of RPLR (retail prime lending rate). Are they related?

                    2) From your explanation, correct me If I am wrong.
                    If the bank reduce the Base rate then it will be applicable to both existing and New borrowers. However, if the bank has made a reduction in Spread that is over and above Base Rate, only the NEW borrowers will be benefited.

                    3) When bank reduces spread rather than Base rate than old borrower can get it reduced by making noise? but NOT when the bank reduces BaseRate?

                    4) What legal claim (as you said above )can an OLD customer make in order to force the bank to reduce his ROI when there is reduction in Spread by bank ?


                    Many Thanks In advance.
                    Take this example. Till around a couple of months ago these were the offerings by two banks for loans upto 30L
                    1. AXIS bank = base +x = 10 +0.25 = 10.25
                    2. HDFC bank = PLR/BPLR - spread = 16.75 - 6.5 = 10.25
                    I might be half a percentage wrong in my figures for HDFC but the final was the same as 10.25% for both.
                    Now you can see for yourself how much room there is for manipulation in both schemes. With AXIS you are assured that no new customer will ever get a loan of less than 0.25% than you. Banks I dont think ever give loan at base rate so the difference will be less than 0.25% always. HDFC on the other hand can increase PLR/BPLR and spread both so new customers would still get it at 10.25 but old customers will end up paying more

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