PSU banks still undecided on floating home loan rates
APRIL 10, 2007: Even as major private sector
home loan lenders are passing on the impact
of a rise in cost of funds to their borrowers,
there are a few public sector banks which
are contemplating against raising floating
home loan rates for their existing customers.
While a few of them are planning to freeze
the floating rate for small and medium-ticket
customers for the time being, others are planning
to launch separate schemes altogether to shield
their existing customers. For instance, Allahabad
Bank has announced a “freeze”
in its home loan rates at the current level
for the time being for borrowers up to Rs
10 lakh.
AllBank has, on Monday, raised its benchmark
prime lending rate (BPLR) by 75 basis points
(bps) to 13.5% from the current 12.5%. The
change in BPLR will, however, not be applicable
to home loan borrowers up to Rs 10 lakh, the
bank said.
Bank of India (BoI), on the other hand, intends
to link its floating home loan rates directly
to its prime lending rate (PLR), whereas it
maintains a floating reference rate (FRR)
for existing home loan borrowers. It intends
to keep its FRR unchanged at the current level
or there would be a marginal increase, according
to a senior BoI official.
Meanwhile, Indian Bank CMD KC Chakrabarty
said that the bank may not require to raise
its lending rates at all. “We have increased
our lending rates very recently and may not
need a follow-up rise in rates. Our cost of
deposits was
well under control.”
However, not all public sector banks could
play the same tune. For instance, Uco Bank
was considering to protect its existing home
loan customers. However, after a detailed
study on its cost of funds, it de-cided to
raise home loan rates on Monday. The bank
raised its BPLR by 75 bps to 13.5%.
There will be a matching impact on home loan
borrowers, who have taken loans on floating
rate basis. Significantly, nine out of 10
existing home loan borrowers are feeling the
pinch with the latest rise in interest rates.
For the simple reason that almost 90% of home
loans borrowers have taken the loan on floating
rate that are subject to frequent changes,
following interest rate movements.
In the private sector, ICICI Bank, which
has the largest home loan portfolio, was the
first to increase home loan rates to all new
and existing customers. The bank’s home
loans are now more expensive than rival HDFC’s
and the revision may now see a rebalancing
of its portfolio. On Monday, Centurion Bank
announced a 50 basis points increase in its
PLR to 15% per annum.
Source: The Economic Times
