UCO bank signal for reducing interest rate on home loans

On Friday state-owned bank UCO bank announced that it might cut home loan rates by 50 basis points. The final decision will be taken in the board meeting scheduled to be held on March 15.

Yet it has not been clarified whether lower rates will be offered for home loans under Rs 20 lakh. Though, the government had said that it is in favor of lower interest rates for home loans under Rs 20 lakh to meet demand. These loans comprise 80% of the advances classified under priority sector.

“We have already cut down home loan rates by 50 basis points and may further cut down the rates by another 50 basis points,” UCO bank chairman and managing director S K Goel said.

On being asked about raising capital, Mr Goel said the bank would take a view only when market stabilizes. He said in case markets do not stabilize till June, the bank would raise about Rs 250 crore through qualified institutional placement.

Smaller loans have less risk weight than those above Rs 20 lakh and, therefore, bankers have reason to lend to these borrowers at lower interest rates.

Already several banks, including SBI, Canara Bank, Allahabad Bank and HDFC, have reduced lending rates by 25-50 basis points. While The largest private bank, ICICI Bank, has said there could be softening of rates in the first quarter of the next fiscal.

SBI have fixed charges 10%-11.5% for loans up to Rs 20 lakh. Mr Chidambaram’s has recently called for softer interest rates which could mean further lowering of interest rates in the home loan segment.