Second home loan rates may go up

May 14, 2007: Second home loans may cost more as some large public sector banks are contemplating a higher interest rate but home loans below Rs 20 lakh are likely to get cheaper, providing relief to the lower and middle-classes.

Taking a cue from Union Bank of India which has reduced its interest rate on home loans below Rs 20-lakh, a few large public sector banks are understood to be considering following suit. Smaller banks, however, are unlikely to do so.

Similarly, a higher rate of interest for second home loans also appears on the cards, but here again, it is the bigger public sector banks which are believed to be considering such a move. "There's been some thinking on these lines," a top State Bank of India (SBI) official said. “However, no decision has been taken as yet. We will decide within the next 10 days." Presently, SBI charges the same rate for both first and second time home loans. ICICI, a big-time home loans lender, has already indicated that it may consider a higher rate for second-time loans to discourage speculation in the real estate sector.

A Bank of Baroda official said that reducing rates on loans below Rs 20-lakh would depend upon factors like cost of funds for the bank. "We are studying the matter," he said.

The official said charging a higher interest rate for second home loans was also "under discussion" but a decision either way will be taken only by end-May or early- June.

Bank of India, another big public sector lender, said that it had not increased its home loan rates when other banks did so in the past and "hence, there may not be a need to reduce them. Our rates are very competitive," its executive director K R Kamath said.

On second home loans, Kamath said that "as of now, we are not contemplating any increase in rates, but going forward, we may look at it." Smaller public sector banks such as Central Bank, Dena Bank and the south-based Indian Bank which cater to small ticket loans said that they may have no need to raise rates on second home loans since they do not receive many such applications.

On reducing rates for loans below Rs 20-lakh, many of them said that with their rates already very competitive, a reduction could be contemplated only after taking a considered view of all factors.
Dena Bank's executive director, U S Kohli, said that since the bank had not revised upwards its rates the last time, "there is no question of reducing rates below Rs 20-lakh." Second home loans too were not of much concern to smaller banks since the majority of their loans were in the range of Rs 5-10-lakh. "90% of our loans are in the Rs 8-10-lakh range," Bank of Maharashtra's MD M D Mallya said.

Mallya said going forward the bank may consider reducing its rates below Rs 20-lakh. "We may review the issue at our next asset-liability committee (ALCO) meet," he said.

Source: The Times of India