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 central bank has said no loan can be advanced below the new benchmark rate.
No change for customers
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
Rise in base rate won’t affect your repayments
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
RBI clarifies the special home loan scheme
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.
A bank will have to honour a fixed rate contract
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.
ET Bureau
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