Fixed Rate loan borrowers are safe? | New base rate from RBI

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Fixed Rate loan borrowers are safe?

THE Reserve Bank of India has said a bank will have to honour a fixed rate contract even if interest rates move up in future.The clarification has removed doubts that some banks had over introduction of fixed rate home loans.Customers of some banks feared that if the lenders base rate rose above the contracted fixed rate,the bank might increase the loan rate citing RBI guidelines even though the loan was termed as fixed rate.The central bank has said no loan can be advanced below the new benchmark rate.

Banks like Punjab National Bank,State Bank of India and ICICI Bank are offering fixed rate home loans,but customers were worried that they may be charged a higher rate of interest rate if the base rate goes up since no bank is allowed to lend below base rate.However,RBI has said at the time of contracting a fix rate loan if the lending rate (under the special scheme) is higher than the base rate,banks do not need to charge higher rate even if the lenders raise their base rate in future.
For instance,PNB has decided to offer a fixed rate loan of 8.5% on home loan for the first three years.In case PNB decides to raise its base rate,which is now at 8-9 % after a year,RBI has said they cannot charge customers (who have opted for 8.5% three-year fixed rate scheme) an interest rate more than 8.5% in the first three years.SBI scheme offers 8% for the first year and 9% for the second and third year.

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