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Why home loan borrowers should be happy!

May 06, 2014 12:47 IST

Why home loan borrowers should be happy!

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Rajiv Raj

Home loan borrowers have something to cheer about.

Reserve Bank of India Deputy Governor Anand Sinha-led working group has come out with suggestions that would bring down the costs for the home loan borrowers in India and also bring in more transparency in the home loan market.

Over the last five years, the banking sector regulator -- the Reserve Bank of India -- has taken steps to tilt the balance in favour of the home loan customers.

Measures such as abolishing prepayment charges on home loans or introduction of base rate have benefited home loan borrowers immensely.

The working group, however, now intends to unveil the next round of suggestions that could further help home loan borrowers.

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The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

 


Photographs: Uttam Ghosh/Rediff.com

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One of the suggestions is bringing in more transparency in the system.

Most borrowers who opted for floating rate home loans complain that banks are quick to hike the rates on home loans given in a rising interest rates situation in the economy.

However the same bank takes time to cut interest rates, when the interest rates fall.

The home loan borrowers are disappointed and miffed when banks are quick to reduce interest rates on deposits when the interest rates fall, but are not quick to cut the home loan rates simultaneously.

The suggestion that Indian Banks Association (IBA) should develop a new benchmark for floating interest rate products -- Indian Banks Base Rate (IBBR), which may be collated and published by IBA on a periodic basis, can be a blessing for the home loan customers of the banks.

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Photographs: Uttam Ghosh/Rediff.com

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Such a transparent arrangement with pre-determined reset dates will ensure that the home loan customers get to service their home loans at a 'real interest rate' which captures the movement in the interest rates in financial markets.

This will bring in some discipline and transparency in the reset of home loan rates.

The regulator prescribed penalty if a bank harasses a customer by delaying the transfer of documents in case of a transfer of a home loan from one bank to another.

The advice to IBA to come out with guidelines for easier and quicker transfer of loans is another plus point.

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Photographs: Rediff Archives
Tags: IBA

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All these suggestions are surely a step in the right direction, which will favour debt-ridden individuals, who otherwise are working really hard to repay their home loans in the high inflation environment.

RBI must approve these suggestions at the earliest.

The working group's stand to help the customers by lowering costs and bringing in efficiencies needs to be supplemented by a robust grievances redressing mechanism at the regulatory level.

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Photographs: Uttam Ghosh/Rediff.com
Tags: RBI

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Also the use of credit report in the home loan disbursements should be encouraged by asking banks to roll out products or products features such as lower interest rates for individuals with high Cibil credit scores.

An important thing to note here is the awareness of importance of credit report.

On the one hand banks use Cibil credit reports while taking lending decisions, the individuals on the other hand have no clue about their credit report and CIBIL score.

Hence, it makes sense for RBI to pitch for one free CIBIL credit report to individuals each year.


Photographs: Rediff Archives
Tags: CIBIL , RBI

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