Lending rates have begun increasing, starting from sub prime lending category, making home loans costlier.
Banks usually lend to credit worthy customers at rates far below the Benchmark Prime Lending Rate (BPLR).
These rates are called sub BPLR rates or sub prime rates. The sub prime customers usually comprise of rich corporates and high net worth individuals.
Corporation Bank has begun revaluing its short term loans from 1st April 2010. J M Garg, chairman and MD of Corporation Bank said, “Now our short-term sub-PLR is in the 6-6.5% range”.
The bank previously used to give loans at rates as low as 3.75 – 4% which is far lesser than the BPLR of 12%.
M Narendra, executive director, Bank of India said, “As interest rates are going up, the tendency to give loans at cheaper rates cannot be sustained”.
There are 2 primary reasons that can be assigned to banks altering their short term lending tactic. First is the policy tightening steps as increase in major rates by RBI.
Another factor is the interest computation on daily basis for savings account as required by RBI from 1st April 2010. This has hiked the cost of funds of banks by 10-20 basis points.