While I know that floating rate home loans have ’really not been’ that floating, in the sense that ’many’ banks are known to revise interest rates upwards when RBI sneezes with CRR/Repo hikes but giving competitive interest rates to new borrowers. My Kotak’s experience has been quite a revealation. I have had relation with Kotak since 2000 when I bought my car and they financed it. I went through their DSA who later turned to be a good friend of mine. I took a personal loan at fixed interest rate (thankfully) and that too went through without any issues. Given this experience, I decided to switch my homeloan to Kotak from a housing finance company since Kotak was offering a very competitive interest rate (7%) at that time (Oct 2004) and I ended up repenting that decision.
While RBI started raising CRR/Repo rates, Kotak started raising rates from 1 Jan 2005 at regular intervals. I also observed to my surprise that Kotak was advertising rates at least 0.5% lower than my home loan rates in my office premises. I took up the matter both with my DSA (who I still consider as my friend) and Kotak. They both pleaded helplessness since we have no say in defining what their BPLR should be. The drama continued till Oct 2008 when my interest rate reached a laughable level of 14.25% whereas markets were offering loans between 10.5% - 12% (source apnaloan.com). I have another housing loan with IDBI for another property I purchased an year later and, thank Goodness that went to IDBI (by then Kotak’s color was quite evident to me). I must say IDBI (perhaps being a nationalized bank) was much more lenient in revising floating rates and presently they have revised it to 11% which is much closer to newly offered rates these days.
In summary Kotak’s strategy is very simple. Lock in a customer into a floating rate with a comparatively lower interest rate than market and they jack it up at regular intervals. From their quarterly filings, their net interest margin is a whopping 6% which no other bank is even close to. However looks like they don’t realize that, in today’s networked world, you can’t fool all everytime. In terms of financial performance, Kotak is the worst performing bank today with low credit offtake and bad loans.
Anyways, I’ve terminated my relationship with them and there too there is so much haggling that I don’t think they are in the business for the long haul. By all measures, I should have been their ’priority customer’ as I’ve been banking with them for 8 years now, never had a cheque bounce or installment defaulted upon. However, the level of greed I saw from the bank, really made me feel very sad.
I wish them good luck and hope they will learn from their mistake. My sincere advise to them would be to stop treating customers like the proverbial ’hen that laid Golden eggs’ and start looking business value in treating customers fairly.
If you need any clarification, I may be mailed at prashkat@gmail.com.