Nation Current Affairs 08 Feb 2018 Kerala: Home loans f ...

Kerala: Home loans for pre-2016 borrowers to be cheaper

DECCAN CHRONICLE.
Published Feb 8, 2018, 1:42 am IST
Updated Feb 8, 2018, 1:42 am IST
The central bank brought in the MCLR regime in April 2016, replacing the base rate system as the benchmark rate.
RBI decides to harmonise the methodology of determining the benchmark rate by linking the base rate with the marginal cost of lending rate effective April 1, 2018.
 RBI decides to harmonise the methodology of determining the benchmark rate by linking the base rate with the marginal cost of lending rate effective April 1, 2018.

Kochi: Customers who had availed home loans before April 2016 can expect to get it cheaper with the decision of the RBI to harmonise the methodology of determining the benchmark rate by linking the base rate with the marginal cost of lending rate (MCLR) effective April 1, 2018. 

As part of the monetary policy unveiled on Wednesday, the key financial regulator will issue necessary instructions to banks next week. Under this, it will mandate banks to use the new benchmark applicable for even old loans.

 

The central bank brought in the MCLR regime in April 2016, replacing the base rate system as the benchmark rate. The MCLR has been described as the more efficient system of pricing loans as it links to the cost of funds. Under this system, banks cannot lend at a minimum lending rate which is calculated based on the cost incurred on incremental deposits instead of the average cost of deposits. 

The rates under MCLR have been found lower compared with the base rate. Although it came into being in 2016, loans raised before April 2016 continued to be priced on the old base rate. 

The RBI statement on Wednesday pointed out that despite the introduction of MCLR system, "a large proportion of bank loans continues to be linked to the base rate". 

The new decision is expected to change the practice bringing relief to many home loan takers.

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