Are fixed rates on their way out?

The bad news is that experts expect interest rates to rise in the near future due to an increase in demand for credit.

Print Edition: March, 2010

The bad news is that experts expect interest rates to rise in the near future due to an increase in demand for credit. Says Chanda Kochhar, CEO and managing director, ICICI Bank: "We will see an upward pressure on rates by the second quarter of the next fiscal." In this scenario, the fixed-cum-floating 'teaser' loans being offered by most banks could be a casualty in the short term. Most such schemes end by 31 March and bankers say that they will reassess the viability of continuing these, depending on their cost of funds. In fact, Axis Bank has withdrawn its teaser home loan scheme two months before schedule. Other banks may follow suit, particularly in light of the RBI's move to rejig the bank loan system.

On the other hand, banks are hedging their bets on deposits.

HDFC, for instance, has introduced a monthly deposit plan on a floating rate of interest, which will be reset at the beginning of each calendar quarter. Says Conrad D'Souza, senior general manager, HDFC: "With interest rates expected to rise, this will allow customers to eliminate risk." Under this scheme, depositors can select any period between 24 and 60 months and the monthly instalment amount ranges from Rs 2,000 to Rs 50,000. Agreed, it's not a unique idea. A number of banks had introduced floating rate deposits after 2001, but most of them withdrew these schemes due to poor customer response. Are investors are finally ready for such products?

Regulator watch

A look at the recent rulings which can affect you


  • Sebi wants mutual fund companies to make all disclosures about the risks involved in their products more prominently (in bold letters) in their advertisements and communications.
  • In a bid to make the grievance redressal process more transparent, the market regulator has ruled that the details of complaints lodged by investors, and the action taken, should be displayed on the Websites of the depositories.
  • Sebi has modified the provisions related to the valuation of debt and money market instruments to ensure that the portfolios of fund houses reflect the current market scenario. It has also directed mutual funds to provide transaction details, including inter-scheme transfers, on a daily basis.


  • The RBI has issued fresh guidelines on the import and export of money by individuals. Now, Indian residents can carry up to Rs 7,500 per person while travelling abroad (other than to Nepal and Bhutan) and bring back an equivalent amount on returning to India. Earlier the limit was Rs 5,000 per person.
  • The Competition Commission of India has sent notices to at least 20 banks, NBFCs and the IBA, seeking an explanation for the hefty pre-payment penalties on foreclosing loans.


  • Acknowledging the failure of the National Do Not Call Registry, Trai is planning to come up with a Do Call Registry, which will boast a list of phone subscribers who don’t mind receiving telemarketing calls.

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