Mumbai, Feb 11: A day after the Reserve Bank of India pulled up country's commercial banks over their failure to let all customers reap the benefits of lower home loan interest rates, the Indian Banks Association (IBA) has rejected the central bank's suggestions saying that it will impact their bottom lines.
RBI on Wednesday, Feb 10 sent a letter to the association over the alleged discrimination between old and new customers of home loans. While the new customers are benefitting from the cheaper interest rates (teaser rates), old ones continue paying the old rates which are higher.
“The IBA said if banks offer lower rates to old customers as well, this will affect their earnings as it is not feasible for them to change their deposit rates accordingly to compensate this loss of interest arising from such a move," an anonymous IBA official is quoted as saying in a news agency report.
Led by the State Bank of India (SBI), bank conceptualised a special scheme, under which home loans were provided at a lower interest (teaser) rates to the new customers for the first few years of the credit period.
This trend which was set by the SBI started off a storm in the industry as the bank saw immense success with the new scheme. So rivals and big competitors followed the suit.
The official who spoke to the news agency on the condition of anonymity said that RBI had written two letters in the past expressing dissatisfaction over the trend.
Earlier, RBI Deputy Governor KC Chakrabarty had said, "We have no concern on teaser rates...you (banks) tease both new and old customers...don't leave out one segment."
Even in the letter sent to the banks in Jan 2010, the RBI had asked the banks to extend the benefits to the old customers as well.