The opprobrium did not inspire banks to bend. Time after time, the Reserve Bank of India (RBI) has plainly and severely expressed its displeasure on banks not passing on the policy benefits to customers, urging them to do so.
“Given the prevailing liquidity conditions and that we have reduced policy rates by substantial amount since the start of easing cycle, I think there is scope for banks to reduce lending rate for those segments. So far, they have not benefited to the full extent of our policy rate cuts,” RBI Governor Urjit Patel said in August this year.
Now, banks may not be left with any scope to manoeuvre lending rates in their favour as a new benchmark to set rates may be put in place.
An internal panel, set up by the RBI to examine various aspects of the MCLR system, has recommended linking of the bank lending rates to external benchmarks. The panel submitted its report to the RBI on September 24.
With an aim to improve policy transmission, the Reserve Bank last year introduced a new lending benchmark, known as the marginal cost of funds-based lending rate (MCLR). The new lending benchmark replaced the previous base rate system which was operational since 2010. Prior to that, banks lent to customers using the Benchmark Prime Lending Rate (BPLR) system. These changes in lending benchmark were primarily meant to make sure borrowers were able to gain from policy changes announced by the central bank from periodically—the RBI announces changes in its monetary policy once in every two months. Quite like its predecessors, the MCLR system failed to help consumers.
“The experience with the MCLR system introduced in April 2016 for improving monetary transmission has not been entirely satisfactory,” RBI Deputy Governor Viral Acharya told media after the RBI announced its third bi-monthly monetary policy review for 2017-18 on August 2.
It is also worth mentioning here that both the base rate system and the MCLR benchmark are not in line with global practices loan pricing.
The panel has also recommended that a new external lending benchmark is put in place to ensure banks pass on the benefits they receive policy changes to borrowers. The panel proposes that lending rates could be tied to three lending benchmarks to improve policy transmission. These include Treasury Bill Rate, Certificate of Deposit Rate and RBI’s policy repo rate. Deposits would also be linked to one of these three benchmarks.
Between September 2016 and 2017, overnight MCLR rates have come down to 8.10 per cent from 9.15 per cent. In the same period, 91-day treasury bill rates have fallen to 6.11 per cent from 6.52 per cent while the repo rate has come down to 6 per cent from 6.5 per cent.
“We think that the internal benchmark such as the base rate or MCLR seems to give banks a very high amount of discretion. A lot of factors give them the flexibility to keep lending rates high even if the monetary policy rates are going down and are on (an) accommodative path,” Acharya told media after the fourth bi-monthly monetary policy was announced on October 4.
“To address this, we think it’s time to move to what most countries follow — to have these rates tied to external benchmarks, which will create transparency for borrowers. They can just compare two loans and see which is at a lower spread because the benchmark would be the same,” Acharya added.
The RBI panel has also recommended that as against the current system of annual reset of interest rates, rates be reset every quarter. Financial institutions would have the freedom to decide on the spread over the external benchmark. However, this spread would be fixed through the term of the loan, the report said.
The committee report has proposed that all borrowers be migrated to the new system by March 2019 without a switchover fee. It is worth mentioning here that a large number of existing borrowers still have their loans linked to the previous base rate regime.
The Cabinet has appproved the increase in the carpet area of houses eligible for interest subsidy under the credit linked subsidy scheme for the middle income group under Pradhan Mantri Awas Yojana (PMAY). The interest subsidy has been in force since January 1, 2017 pursuant to the PM Modi’s address on December 31, 2016 announcing increased benefits for poor people availing housing loans, and a new interest subsidy scheme for housing loans for the Middle Income Group (MIG).
Five things to know about the new rules announced under Pradhan Mantri Awas Yojana (PMAY)
1) After the latest amendment is incorporated, carpet area will be increased in the middle income group (MIG-I) category of credit linked subsidy scheme (CLSS) from the existing 90 square metre to up to 120 square metre.
2) In respect of the middle income group (MIG) II category of credit linked subsidy scheme, Carpet area will be raised from the existing 110 square metre to up to 150 square metre.
3) The CLSS for MIG covers two income segments in the MIG, including Rs. 6 lakh to Rs. 12 lakh (MIG-I) and Rs. 12 lakh to Rs. 18 lakh (MIG-II) per annum.
4) In the middle income group 1 category, an interest subsidy of 4% is allowed for loan amounts up to Rs. 9 lakh while in the middle income group 2 category an interest subsidy of 3% is allowed for loan amount of Rs. 12 lakh. Housing loans above 9 lakh and 12 lakh will be at non-subsidized rates.
5) The interest subsidy will be calculated at 9% NPV over maximum loan tenure of 20 years or the actual tenure, whichever is lesser.
Mohit Gurung, 38, bought a property is Siliguri but two months later he started finding faults in it. At home, electronic boards were all shaky, in the society powers cuts were more of a norm than an incident, and outside, roads were in real poor condition. During the site visit, Mr Gurung only focused on the location and price of the property. This is where he went wrong.
Before you go for a property site visit, here is a checklist you should be carrying with you (take a printout of this comprehensive house visit checklist for beginners):
Construction quality: Check for the ceilings, flooring, and other hardware. See if there are any leaks or damp corners.
Interiors: If you are visiting a furnished property, see whether the interiors, including kitchen cabinets, almirah and sanitaryware, is of good quality.
Building approvals: In case of a housing society, check for all the approvals including fire safety, security and even construction approval certificates are available.
Elevators: Check how quick the elevators are and how secure they are from the inside. They should have an emergency phone, an emergency alarm and if in a premium society should have a liftman, too. All these services should be available.
Security measures: Keep a keen eye on the security measures taken in the society. This includes security cameras, security guard and intercom facility. Ensure that these are operational and maintenance is up to the mark. Check with the neighbours if there have been any break-ins in the society.
Power backup: Make sure that a power back-up facility is available in case of an emergency.
Plumbing and wiring: Check that all plumbing and wiring is well connected and in working condition. To give a thorough check, switch on all the electricity buttons and turn on taps to check the supply.
Phone signals: This is very important. There can be locations where your operator’s signals are not available. So, make sure you are getting proper signals for both calling and internet services.
Sunlight: Enter every possible nook and corner and see how much daylight do they get to soak in. By spending some time here, you will also be able to figure out if the walls are too thin and all sorts of voices enter the premises.
Weather check: All properties look good when the weather is fair. Do not forget to pay a visit when it might be raining. This would give you a clear idea about how effectively the neighbourhood is equipped to handle water accumulated during the rainy season.
Take an expert: If you take a property inspector along with you, they will help you have a clearer understanding on the viability of the property. An expert is more likely to catch points that might not be obvious to a lay man’s eye.
Do not forget to take photos: This is a must. Pictures will help you compare properties with one another when you are back home and are about to take a final decision.
Always call a property expert before taking a decision. Call GFS Realtors on 99330 22222 or visit www.siliguriproperties.com