The lag is not inherently unfair because it applied both sides – there was a lag for existing borrowers even when the interest rates went up in this month for new borrowers. Nor is this restricted to SBI Home loans
alone. This is true of most borrowers who have taken their home loan from banks. In fact, Citibank has gone a step further and announced a home loan linked to the three-month Treasury Bill rate, which is a completely independent reference rate announced by the Financial Benchmarks India (FBIL). It appears to be completely transparent. There does not seem to be any catch in the scheme, at least none that I could find. We will know soon as the product gets implemented on the ground. Competitive pressures may force other banks to follow suit.
So, does this mean it is the new age of fair treatment for home loan borrowers? Let’s not pronounce judgement too quickly.
The new MCLR system leaves the large section of the borrowers who have borrowed from Housing Finance (HFCs) companies in the same old rut. If a borrower, given in the example above, had taken a loan from an HFC in April 2016, he would have paid a similar rate of 9.45 per cent that time. The difference: he would still be paying around 9 per cent versus 8.20 per cent he is paying in SBI. While competitive pressures force HFCs to match interest rates for new borrowers, the same does not apply to giving fair treatment to existing borrowers of an HFC.
Clearly, banks seem to score over HFCs. However, borrowers who are not alert will continue paying the price of inertia as they have always been doing so far.
The writer is a Sebi-registered investment advisor