Home loans taken prior to April 2016 may become cheaper

Old home loans are likely to become cheaper with the RBI asking banks to link from April 1 the base rate with MCLR, which is more sensitive to policy rate signals.

The Reserve Bank had introduced the Marginal Cost of Funds based Lending Rates (MCLR) system with effect from April 1, 2016 on account of limitations in the base rate regime.

Home loans taken before April 1, 2016 were based on base rate, which was arbitrarily decided by banks. Interest rates, which have a bearing on the MCLR, has been moving southwards post demonetisation.

“With the introduction of the MCLR system, it was expected that the existing Base Rate linked credit exposures shall also migrate to MCLR system,” RBI said in the statement on Developmental and Regulatory Policies.

It is observed, however, that a large proportion of bank loans continue to be linked to the Base Rate despite the Reserve Bank of India highlighting this concern in earlier monetary policy statements.

(Agencies)

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