A Reserve Bank of India (RBI) panel has recommended a new benchmark for floating rate loans for banks to give borrowers a better estimate of their credit cost.
A working group on pricing of credit has made several other key proposals too faster transfer of home loans, facility to reset interest rates without getting caught up with when banks change their Base Rates and no extra charges on customers who shift from BPLR linked loans to Base Rate.
The report of the panel when implemented would make loans cheaper for bank customers. The panel was headed by RBI deputy governor Anand Sinha. “This may result in more transparency in pricing, reduced customer complaints and better transmission of changes in the policy rate,” it has said.
If banks use weighted average cost of funds because of their deposits profile or any other methodology that may result in differentiation between old and new customers, the boards of banks should ensure that this differentiation does not lead to any discrimination amongst borrowers, the panel said.
“There’re many hidden rules now and banks change them without informing the customers. The proposals will improve transparency,” said the former chairman of a PSU bank.
According to the panel, the Indian Banks Association should develop a new benchmark for floating interest rate products, namely, the Indian Banks Base Rate (IBBR), which may be collated and published by IBA on a periodic basis. It said the floating rate loan covenant may have interest rate reset periodicity and the resets may be done on those dates only, irrespective of changes made to the Base Rate within the reset period.