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The Reserve Bank of India, in its latest Credit Policy, has, among other things, raised the provisioning for residential home loans above Rs 20 lakh from 0.40 per cent to 1 per cent for lending banks/institutions to guard against the impact of bad loans.

This measure is expected to result in an interest rate hike by banks/institutions for individual borrowers. But, it remains to be seen whether banks/institutions will resort to interest rate hike only for residential home loans above Rs 20 lakh or across the board.

There is no justification for interest rate hike for residential home loans below Rs 20 lakh as the increase in provisioning norms proposed is applicable only for that category.

Many leading banks/institutions have been regularly increasing the interest rate on floating rate residential home loans at periodical intervals. Of course, when a borrower opts for floating rate interest on home loanthe interest rate risk is borne by him/her.

But this clause seems to be used by many banks/institutions to their advantage. It is hoped that better sense will prevail with the banks.

L. Raghunathan

Chennai

Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in

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