Home loan rates are on their way south. The recent player to add to cut rates is LIC housing finance. A 75 basis point cut in the lending rate is also applicable for the existing customer. Considering the existing customer for the rate cut is a big thing. Considering a single digit rate of interest for the new customers in the industry, it is unjust for the bankers to charge 12-13% interest for the existing customers. Especially the private sector bankers, such as ICICI Bank are more than keen to continue with the high rate of interest on their asset books.

There is a need to revive demand for homes to boost the economy. But it is equally important that the existing loan portfolio do not emerge as a bouquet of non performing assets. As the salaries are cut and jobs are lost, the already burdensome home loan equated monthly installments are an up hill task. No wonder, if there are defaults.
This makes a strong case for passing on the benefit of a rate cut to the existing customers. Here one has not factored in the ill effects of house loss due to default on the home loans.

The most unfortunate scene is ‘quarterly results’ oriented banking system in India. The private sector players such as ICICI Bank, HDFC and Kotak Bank to name a few are rather cautious about their ‘spreads’ than the ‘economy. The public sector banks typically work on the directives of the government. A directive from the ministry of finance is more important and the rest falls in place, whether the step is profitable for the bank. The government effectively used the public sector banks as a tool to create a ‘price war’ in the banking system. The quick move by State Bank of India, followed by other public sector banks made us wonder if there are no ‘spread’ issues with them.

For a moment we keep aside these issues. Though it has been reiterated that there is a need to introduce a transparent system which ‘calculates’ the floating rate of interest for banks. After all, it is in the greater interest of the government and the banking system to ensure that there will be no ‘burst’ of unrest of the borrowers.

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