Change in base rate won’t affect customers having fixed loan rate contract

The Reserve Bank of India (RBI) has clarified that banks will have to honor a fixed rate contract, even though the interest rates are raised in future. Some banks had doubts over introduction of fixed rate home loans.

Even customers of some banks also had doubts in case lender’s base rate rose above the contracted fixed rate, the bank might raise loan rates as per RBI guidelines no bank can lend below the new benchmark rate.

Some of the big commercial banks like Punjab National Bank (PNB), State Bank of India (SBI) and ICICI bank are offering special home loans scheme on fixed rate, so customers of these banks are worried that they might have to pay higher rate of interest in case lenders raised base rate as no bank is allowed to lend below the base rate.

RBI has also clarified that at the time of signing a fix rate loan contract if the lending rate (under the special scheme) is higher than the base rate, banks should not charge higher rate even if they raise their base rate in future.

For instance, PNB is offering a fixed rate loan of 8.5% on home loan for the first three years. At present bank base rate is 8-9% after a year, if bank raises its base rate, in such case RBI has said that bank cannot charge customers (who have opted for 8.5% three-year fixed rate scheme) interest rate more than 8.5% in the first three years.

The country’s largest lender SBI is offering 8% for the first year and 9% for the second and third year under its special scheme. SBI scheme is upto September, PNB’s scheme is till December 10.

However, RBI has instructed banks that if they hiked or lower base rate, that increase or cut in rates should be passed on to the new customers under the special home loan scheme. So, in case PNB raises its base rate, to suppose 9% in October, the customers who have availed the loan at a fix rate of 8.5% before October, need not have to pay more but for the new customers who avail fix rate home loan from October, the bank will charge a revised rate and cannot continue to offer 8.5% rate.

PNB has recently launched its festive loan offer and is keen to offer a fix rate scheme therefore, the lender asked for a clarification from RBI on this issue. Under the special scheme PNB is offering fix rate offer 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.