ICICI Bank, India's second biggest bank, has offered to lower the equated monthly installments (EMIs) for a large number of its borrowers by enhancing the tenure of their home loans.
A letter to borrowers explained that the move was being made as a "customer-friendly gesture".
The bank had raised the benchmark reference rate or the prime lending rate for floating rate borrowers in February and March 2007, following which many borrowers were asked to pay higher EMIs.
"Subsequently, we have received a lot of feedback from customers that they would prefer to increase the tenure rather than increasing the EMI," the letter said.
The offer was open from April.
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Confirming this, a senior bank executive said, "Borrowers with a good track record have been given the option based on the feedback received from some of them. Borrowers also have the option to pay the EMI that they have been paying and not opt for a longer tenure."
The move comes at a time when many sectors like information technology and even financial services are seeing lower increments this year.
The bank, however, termed the move routine and the executive said, "There are many sectors that are doing better. The Sixth Pay Commission recommendations may be implemented this year. The economy is stable. What you are seeing is some precautionary check on spending. But we have not seen any impact as people were paying the higher EMI. For everyone, a home loan is top priority when it comes to repayments."
Earlier this year, when most banks reduced interest rates on cues from the government, ICICI Bank did not cut rates.
As a result, the interest differential between an ICICI Bank mortgage and a home loan offered by a public sector went up, prompting some borrowers to shift to players that charged lower interest.
The ICICI Bank executive, however, said that the move was not aimed at reducing the EMI differential.
"During a period of 18 months, the interest cost went up 350 basis points and what you saw in February-March this year was a 25-50 basis point reduction. That does not affect a borrower since they have to pay a prepayment charge to go to a new lender," the executive said.
ICICI Bank was among the first players to cash in on the retail loan boom and accounts for nearly one-third of the market.