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Banks may review home loan rate hikes

Banks will revise their home loan interest rates

Apnaloan.com Research Bureau

10 Aug 2007

Mumbai: The boards of most public sector banks, which are scheduled to meet in the coming weeks to consider results for 2006-07, may now include on their agenda the review of home loan rate hikes.

This follows the finance minister's request to PSU banks not to raise home loan rates for those customers who have taken less than Rs 10 lakh loan.

This is the second time that the FM has asked banks not to raise home loan rates for the existing customers."It may be difficult for some banks to roll back the rate hike, but for those banks which have yet not announced a rate hike may consider not to raise rates for the existing home loan borrowers below Rs 10 lakh," said a senior banker.

State Bank of India, Bank of Baroda and Canara Bank are some of them which have raised home loan rates for all customers even the existing borrowers when they revised their prime lending rates in the wake of policy tightening by RBI.

However, other banks such as Allahabad Bank and Union Bank of India had refrained from raising rates for the existing home loan borrowers even while raising rates for new borrowers. Some banks such as Indian Bank did not raise rates at all, awaiting further policy directions.

Earlier, the Alco Committee of SBI had suggested to the board of SBI not to revise the home loan rates for the existing customers. However, considering the pressure on the margins, the board had decided to go ahead with a rate hike for all customers of SBI, including the home loan borrowers.

"We believe unlike in the case of corporates where the interest component is not a very significant portion of the loan, in the case of retail home loans, EMI is a very significant portion of the income, sometimes even 50% of the income. So we have decided not to hurt that segment with a rate hike, " said MV Nair, CMD of Union Bank of India, which has not raised rates for the existing home loan customers in all brackets.

In the last three months, banks have raised their prime lending rates two-three times.

And each time, the rate hike was in the region of 50 to 100 basis points. Now, ICICI Bank is charging 14% for fixed rate loans, while its floating rate is pegged at 12%. By restricting rate hikes to borrowers above Rs 10 lakh, the public sector banks will be altering the terms of their contract with the borrowers. In terms of the home loan contract, floating rate loans were to be revised, following every revision in the benchmark rate.

(Courtesy: Economic Times)

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