The Telegraph
Since 1st March, 1999
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Home loan rates to go up

New Delhi, April 28: Home loans, including those below Rs 20 lakh, are set to turn costlier.

A few public sector banks, including the Oriental Bank of Commerce, Punjab National Bank and Allahabad Bank, are planning to raise interest rates on such loans despite the RBI reducing the risk weight on them in the latest monetary policy.

“Home loan rates would be increased in the range of 50-75 basis points for new borrowers seeking loans up to Rs 20 lakh,” said Allen C.A. Pereira, executive director of the Oriental Bank of Commerce. A decision will be taken by the bank’s asset liability committee on Monday.

However, existing borrowers will be spared from any rate hike, Pereira said.

The bank had not touched home loans despite three successive hikes in prime lending rates, he said, adding, “We cannot lend when we raise deposits at 9.5-10 per cent”.

“Even if we charge home loans at around 10.75 per cent, it is highly competitive and lower than most private banks,” said Pereira.

The exposure of the bank on the home loan market is around Rs 5,000 crore.

Echoing Pereira’s views, Punjab National Bank chief general manager, U. S. Bhargava, said, “We are planning to raise home loan rates by 50 basis points on loans up to Rs 20 lakh.” A decision will be taken on Monday.

Avoiding a direct reply on whether his bank is also planning a similar move, Allahabad Bank chairman A.C. Mahajan said, “The asset liability committee of the bank will take a re-look at home loan rates after May 5.” “If we find our rates are lower than that of others, we will adjust them,” he added.

According to industry experts, a few state-owned banks, including the OBC, PNB and the Indian Bank, spared home loans when the Reserve Bank tweaked benchmark rates in recent times.

“Public sector banks, which did not raise interest rates on home loans since January, would not be able to pass on the benefit of lower capital requirement on loans up to Rs 20 lakh to customers due to high rate on deposits,” said Vijaya Bank chairman Prakash P. Mallya.

The percentage of borrowers who seek home loans of up to Rs 20 lakh varies between 65 and 85 per cent, depending on the bank. Private and foreign banks have fewer borrowers in this category than their public sector counterparts.

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