This interest range for the bank to choose from is termed a spread. This spread is left to the discretion of the bank and depends on the other factors involved in loan eligibility like the credit profile of the loan consumer for instance. According to RBI regulations, banks are required to make changes in existing loans except fixed interest rate home loans, when they change the existing BPLR. However, banks are given the freedom to charge interest rates within the maximum spread of the BPLR. So, banks can choose a lower interest rate in the spread for new customers and still keep the higher interest rates of the spread for existing customers.
Recently people who wish to take a loan have been following the news reports on CRR and repo rate cuts from the RBI with interest. Those who have been subjected to steep interest hikes in the past eagerly looked forward to see the interest rate cuts from the banks take effect. Some banks are planning to pass on the benefits to the existing customers while some others are cutting down interest rates only for their new customers.
What are the factors that come into play here? Why are the banks passing on the benefits only to the new customers? Well…banks have something called the benchmark prime lending rate, which is a reference interest rate that is used as a benchmark to determine the interest rate that is passed on to the customer. The interest rate that is finally passed on to the customer is plus or minus this benchmark prime lending rate.
This interest range for the bank to choose from is termed a spread. This spread is left to the discretion of the bank and depends on the other factors involved in loan eligibility like the credit profile of the loan consumer for instance. According to RBI regulations, banks are required to make changes in existing loans except fixed interest rate home loans, when they change the existing BPLR. However, banks are given the freedom to charge interest rates within the maximum spread of the BPLR. So, banks can choose a lower interest rate in the spread for new customers and still keep the higher interest rates of the spread for existing customers.
Banks have various clauses in the loan agreement that keep the best interests of the lender in mind as the money outflow from banks even on an everyday basis is enormous. The clause that dictate banks can opt to choose from this “spread” of the actual BPLR is the catch that loan consumers need to be aware of. A way out for the loan seeker could be to request for a transparent floating interest rate upfront when applying for a loan. However, with the current spate of repo and CRR rate cuts, some of the banks are effecting changes in the actual BPLR. In this instance, every bank has a cycle to bring the benefit of this change to the existing customers. According to bank policies, this change or floating interest can come into effect on a quarterly or yearly basis or with immediate effect.
i availed a hdfc bank loan less than a month back. inspite of being a "preferred" customer of the bank, i was not advised on the new plan at all & now i realise the loan rate is .5 percent lower for the new users & others are left out.