Canara, Union Bank End Low Home Loan Rate Schemes

News Posted - 2010-02-16

Teaser loans may be on their way out with Canara Bank and Union Bank of India opting to withdraw the scheme in anticipation of a high interest rates. The decision to terminate the schemes ahead of schedules comes less than a week after Axis Bank closed its fixed-cum-floating scheme. While Union bank of India will discontinue its fixed-cum-floating rate scheme from February 15, Canara Bank withdrew its special scheme for housing and vehicle loans from February 20. However, HDFC, the country’s largest mortgage financier, has decided to extend its scheme from February 13 to the end of the month, sources said. The country’s largest lender State Bank of India also plans to continue the scheme till the end of March, executives added.

The twin moves from Canara Bank and Union Bank of India come at a time when the Reserve Bank of India is expressed reservations about fixed-cum-floating rates. RBI is worried that borrowers may be availing of credit while looking at the present interest rate while the monthly installments will increase once the loans shift to floating rate mechanism after 24 or 36 months. In addition, it has written to the Indian Banks’ Association about the discriminatory nature of the special offers which benefit only the new borrowers, while existing borrowers have to deal with higher interest rates.

“At a time when RBI is the government is considering a withdrawal of fiscal stimulus, we decided to end the scheme. In addition, RBI is not happy with the differential rate of interest,” said a senior Union Bank of India executive. He added that the bank had already achieved its target of Rs 3,000 crore of home loan sanctions through this scheme. Axis Bank had told Business Standard that the bank did not want to lock home loan rates at 8.25 per cent at a time when interest rates are expected to head northwards. The bank has decided to continue to one-year fixed rate home loan scheme.

According to Canara Bank’s scheme, all housing loans sanctioned up to February 20 with special interest rates should be availed before March 31, 2010. The unavailed sanctions as on March 31 shall be available at normal rate of interest with effect from April 1, 2010. The rate of interest on housing and auto loans to be sanctioned after February 20 will come at the interest rate prevailing before September 10, 2009, the bank said. In August 2009, the bank had launched a scheme with 8 per cent interest rate for the first year and 9 per cent for the second year and 10 per cent for the remaining period of the loan for individual home loan customers. It had extended the campaign up to March 2010. The bank’s home loan portfolio stands at Rs 8,464 crore, little over 5 per cent of the total advances, as at December 2009. The bank has achieved 27 per cent growth in the first three quarters of the current fiscal ended December 2009 compared to the same period last year.

Source: Indian Realty News