Wednesday, February 17, 2010

Will the base rate be fairer than BPLR?

Home loan borrowers know that old customers on floating rate loans see the rates rise, but not fall. Will the base rate change this unfair game?
For years, home loan borrowers on floating rates felt cheated by banks as they paid more when interest rates rose, but did not pay less when they fell. Banks kept rates high for old customers and reduced them for new ones by keeping the benchmark prime lending rate (BPLR) sticky.

To deal with this problem, among others, the Reserve Bank of India (RBI) on Wednesday announced the move from a BPLR model to a base rate system, effective 1 April. The new rate will apply to all fresh loans but old loans, when they come up for renewal, can switch.

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