The introduction of the base rate may spell the death knell for special home

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and car loan schemes that banks had launched last year with rates as low as 8 per cent. These rates were not linked to their BPLR (benchmark prime lending rate, or the rate offered to the best customers of the bank).

The State Bank of India (SBI) was the architect of the special home loan scheme when in February they came out with a special home loan scheme of 8 per cent without any link to the bank’s BPLR. Later in the year, the bank launched a car loan scheme with the same rate. Many public sector banks followed suit offering similar rates. Private banks were also forced to come out with special schemes.

“SBI’s schemes were a response to the excess liquidity that the bank had and a response to the unusual economic events that the country is going through. The new guidelines certainly have no room for these schemes or any Diwali or Dussera schemes as the rates will have to be passed on to the existing pool of the bank’s customers,” said a senior SBI official.

The final guidelines on the base rate, which will be adopted by the banks from July 1, 2010 stated that changes in the base rate shall be applicable in respect of all existing loans linked to the base rate, in a transparent and non-discriminatory manner”.

The Banking Codes and Standards Board of India (BCSBI), backed by the RBI to implement fair practices in banks, began getting a number of complaints on the special schemes as customers alleged that banks were only reducing rates for the new customers and the falling interest rates did not have any impact on their borrowing costs.

“Banks can now have schemes only if they pass on the benefits to all the customers, which is very unlikely,” said a senior official from the BCSBI.