RBI Ensures Equal Benefits for New and Old Home Loan Borrowers

Floating-rate home loan borrowers, who often felt they got a raw deal, will now have a reason to cheer. The Reserve Bank of India’s (RBI) new rules will ensure that they get the full benefit of any reduction in interest rates. In its final guidelines on the base rate — the new benchmark that banks will use to price loans — the regulator has made it clear that any change in the base rate will apply to new as well as old customers. Banks often offered lower rates and even teaser-rate schemes to attract new customers.

However, existing customers were left out of these schemes, even though they had taken loans at floating rates. As a result, floating-rate borrowers did not get the full benefit of falling rates. This is expected to change, with the new guidelines on base rate coming into effect from July 1. The central bank has said: “Changes in the base rate shall be applicable in respect of all existing loans linked to the base rate, in a transparent and non-discriminatory manner.” It also said, “the actual lending rates charged may be transparent and consistent”.

The regulator had said that the base rate system was aimed at enhancing transparency in lending rates and would lead to a better assessment of monetary policy transmission. According to the RBI formula, the base rate factors in only cost and profit margin while risk and tenure premia will be charged over and above the base rate. However, RBI has given banks the freedom to use any other methodology, provided it is consistent and is made available for supervisory review or scrutiny when required.

The base rate will be the minimum interest rate, and banks will not be able to lend below it. The RBI has, however, made exceptions in cases of loans to employees, loans against deposits and differential rates of interest schemes. In such cases, the rates can be below the base rate. The central bank will separately announce export credit norms. Even a loan below Rs 2 lakh, on which RBI had so far stipulated that the benchmark prime lending rate, or BPLR, would be maximum rate that a bank could charge, will not be below the base rate.

“Now that banks can’t lend below the base rate, the commercial paper and non-convertible debenture market will grow. Second, our concern on short-term loans is addressed, given that the RBI has given banks freedom to have their own formula on base rate,” said JP Dua, CMD of Allahabad Bank. Base rate will replace BPLR. Banks will be allowed to use the BPLR system till December 2010. However, during the six months (till December 2010), banks have been allowed to change the benchmark and the methodology till the system stabilises. Thereafter, they are required to review their base rates at least once in three months. The central bank has also allowed banks to choose any benchmark to arrive at the base rate for a specific tenure that may be disclosed transparently.

Teaser loans out for HDFC, ICICI

HT Correspondent, Hindustan Times

In a move that marks the end of teaser rates on home loans and the beginning of hardening of home loan rates, housing finance companies (HFCs), HDFC and ICICI Bank on Friday rolled back their two-year fixed home loan offering at 8.25 per cent, effective March 1.

The two command a 55 per cent marketshare of the home loans market with leader HDFC controlling a 35 per cent share and ICICI Bank 20 per cent (SBI has a 22 per cent share), according to industry sources.

But the hardening is not on home loans alone. On the auto loans front, ICICI Bank and Kotak Mahindra Bank raised rates by 50 basis points (100 basis points make 1 percentage point) and 50-75 basis points, respectively.

HDFC Bank has hinted at following suit.
While Kotak’s auto loans hike will be effective March 6, it had raised its home loan rate by 50 basis points on February 18.

With rollbacks in place, the entry rate for home loans from ICICI Bank and HDFC stands at 8.75 per cent for loans up to Rs 30 lakh and Kotak offers 8.5 per cent.

“Clearly, there is an upward bias but it will depend on how the market moves on deposit front,” said K.V.S. Manian, group head (liabilities and branch banking), Kotak.

LIC Housing Finance is also looking at its cost of funds. “There is an upward bias but as of now we are continuing with the current rates,” the company’s CEO R.R. Nair said. “If we see an upward movement in rates, we will revise our rates.”

Not all agree. “Rates may go up but not in the short-term as there is ample liquidity of about Rs 350,000 crore in the system,” said Keki Mistry, vice chairman and managing director, HDFC.
Barely a month of Reserve Bank of India raising concerns on teaser rates, the two leading private sector HFCs have withdrawn their offerings.

“ICICI Bank has discontinued the 2-year fixed rate home loan scheme with effect from March 1, 2010,” an ICICI Bank statement said.

While ICICI Bank raised the auto loan rate by 25-50 basis points from Friday, HDFC Bank may follow. “There is a possibility of a revision in auto loan rates by 50 basis points,” an HDFC Bank official on conditions of anonymity said.

Public sector banks, however, are likely to stick to their special schemes till the end of this month. “We are still offering the special rates and will continue till March 31,” a Punjab National Bank official on conditions of anonymity said.

Know All About Property Sales

Ashish Gupta
Source: MagicBricks

In any contract for sale or purchase of property, both the buyer and the seller have certain rights and corresponding liabilities to each other. The law also establishes such rights in the rule book. The main provisions that relate to this aspect are covered under the Transfer of Property Act. According to the act, in the absence of a contract to the contrary, a seller of property has certain rights and is subject to some liabilities.

A seller is bound to disclose all information related to the property to the buyer. He is bound to inform any material defect in the property or in his own title which the buyer is not aware of, or which the buyer cannot discover with ordinary care.

The seller should give the buyer all documents of title relating to the property which are in the seller’s possession or power. After the buyer has paid the amount due, the seller should execute a proper conveyance of the property in favour of the buyer for execution at a proper time and place. Further, between the date of the contract of sale and the handing over of the property, the seller should take as much care of the property and all documents of title relating to it which are in his possession as an owner of ordinary prudence would take.

The seller is bound to give the buyer or any person as he directs possession of the property. Till the date of sale of the property, the seller is bound to pay all public charges and rent due in respect of the property as well as the interest on all encumbrances on the property.

The buyer has a right to assume the seller has interest in the property and that he has the power to transfer it. In case the sale is made by a person in a fiduciary capacity, the buyer has a right to assume the seller has done no act whereby the property is either encumbered or he is hindered from transferring it.

After the money has been paid by the buyer to the seller, the seller is bound to deliver all documents of title relating to the property which are in his possession or power.

However, there are two exceptions to this rule. Where the seller retains any part of the property comprised in the documents, he is entitled to retain the documents. And where the property is sold to different buyers, the buyer of the part of greatest value is entitled to the documents.