Canara Bank scraps fixed home loan rates

Floating rates hiked by 200 basis points.

Canara Bank has stopped mortgage lending at fixed rates and also raised interest charged on floating rate home loans by 175-200 basis points as it grapples with rising defaults. The bank has also decided to charge second-home buyers 25 basis points more, even if the borrower has not taken any loan for the first house.

Home loans above Rs 20 lakh will carry a 25 basis points higher interest than loans up to Rs 20 lakh. The bank is offering loans up to Rs 20 lakh at 10.75-11.25 per cent.

According to a Canara Bank official, there has been a steep hike in rates as the bank had kept its home loan rates unchanged since mid-2006. All the revised rates are effective from June 1, 2007. 

THE RATE CARD Rate Of Interest on floating rate housing loans w.e.f. 1.6.2007:
Repayment period of the loan	Loans upto Rs 20 lakh		Loans above Rs 20 lakh
	ROI	* EMI per lakh (Rs)	ROI	* EMI per lakh (Rs)
Up to 5 years	10.75	2161	11.00	2175
Above 5 yrs up to 10 yrs	11.00	1378	11.25	1392
Above 10 yrs up to 15 yrs	11.25	1153	11.50	1170
Above 15 yrs up to 20 yrs	11.25	1050	11.50	1070
* EMI furnished above is for the maximum period under the respective slab.

The increase in home loan rates by Canara Bank is the highest among public sector banks. The country's largest lender State Bank of India (SBI) raised its home loan rates by 175 basis points, while other public sector banks have increased their rates by 50-100 basis points since mid-2006.

Private sector banks jacked up the home loan rates by over 200 basis points during this period.

The bank has discontinued loans at fixed interest rate from June 1. Loans sanctioned to second-house borrowers, since the start of 2007, will carry a 25 basis points higher rate even if the borrower had not taken a loan to buy the first home. The margin for purchase of a second home is also higher at 25 per cent.

Similarly, the bank now has 5 percentage points higher margin requirement for loans to buy an old house. The margin requirements for a loan to purchase an old house is 20 per cent and 25 per cent for loans up to Rs 20 lakh and above Rs 2 5 lakh respectively compared with 15 per cent and 20 per cent for buying a new house or a flat.

The public sector bank's home loan advances totalled Rs 6,607 crore at the end of March 2006. Housing loans formed 37.6 per cent of the bank's retail portfolio.

The bank has been curtailing its retail portfolio, with retail advances accounting for only 17.84 per cent of the advances of around Rs 92,579 crore.