AT a time when most banks are hardselling loans with the ‘lowest interest rates ever’ slogan, there is need for consumers to be vigilant about these claims. An example of this can be seen in the floating rate of interest being offered by State Bank of India (SBI) on its housing loans which is hardly ‘floating’. The bank is not passing on the benefit of the reduction in the interest rates (which it is supposed to do in the floating rates) to the old customers who have already taken loans in the past. However, the new customers, who are availing of housing loans from SBI and are opting for floating rate are being offered a reduced spread on the base interest rate.To give an example, for an old loan a customer would be paying an interest rate between 12.75 per cent to 13.25 per cent per annum on a 15 year loan while a new customer, who might have decided to go in for a similar housing loan, would land up paying a cheaper interest rate of 10.5 per cent. But this is not what floating interest rate theme is all about. Normally, on a floating interest rate, banks are expected to pass on the benefit of reduction in interest rates even to old customers.SBI’s floating rate is linked to its own medium term lending rate (MTLR), which the bank fixes and revises at its own discretion. Borrowers experienced that SBI charges a margin (called the spread) over the MTLR which fixing interest rates on the floating rate housing loans. During the previous two years, 2000 and 2001, SBI charged a margin of at the rate of 0.5 to 1 per cent plus, over and above the MTLR. At that time MTLR was 12 per cent. However, in the current year, despite the fact that there was a downward pressure on the interest rates, SBI did not bring down its MTLR as many times as it should have. For the new customers, it just tinkered with the spread.According to G. Krishnamoorthy, a SBI customer under the floating rate scheme, ‘the spread for new borrowers have come down from plus 1.25 per cent to minus 1 per cent in the past one and half years. During this period the MTLR was revised just once (from 12 per cent to 11.5 per cent on April 1, 2002), while at the same time housing interest rates (on fixed rate loans) have been revised downward four times (from 13.25 per cent to 10.75 per cent).’ Krishnamoorthy, who is an employee in public sector NTPC, is one of the many borrowers who are suffering under the floating rate scheme of SBI.Other customer like A.K. Sharma, Mithu Bhowmick and A.K. Srivastava, all employees of NTPC, who had also taken loans under the SBI floating rate scheme also continue to pay much higher interest rates.When contacted, senior SBI officials in Delhi accepted that there was a problem with the floating rate and that the rate was actually not floating. ‘We have put forward the problem to the headquarters in Mumbai and they need to take a decision on the issue,’ SBI officials explained.SBI officials also added that there has been a squeeze on their spread between the deposit and lending rates and hence the bank could not do much in passing on the benefit to the customers.However, what is more surprising is the fact that when other PSU banks like Punjab & Sindh Bank, Corporation Bank, Indian Bank and Punjab National Bank (PNB) are passing on the benefit of the reduction in the floating interest rates to their old customers too. In fact, according to an official in PNB, ‘we are trying to win over customers from SBI by stating that they are not passing on the benefit of the floating rate to their customers.’ The problem of squeeze on the spreads are even for all the PSU banks. This cannot be stated as a reason for not passing on the benefits of reduced interest rates to customers, bank officials added.
