Co-ops too mulling home loan rates cut

With a majority of the nationalised and private sector banks going in for cuts in their lending rate on home loans and others loans, that too before the RBI's mid-term review of monetary policy this month-end, it is expected that the urban co-operative banks in the state might follow suite.

With the recent rate cuts on home lending rates and vehicle loans by banks like ICICI Bank, IDBI, State Bank of India (SBI) and Bank of Baroda (BOB), the urban co-operative banks are feeling the heat of competition from private and nationalised banks.

Jyotindra Mehta, managing director of Rajkot Nagarik Shahakari Bank Ltd (RNSBL) told Business Standard, the reduction in the lending rates by the nationalised and private sector banks will certainly have impact on the co-operative bank's business on home loans and vehicle loan.

According to Mehta, in an open market all the players have to face the competition and tackle it, after all, even the co-operative bank is the part of the whole banking sector in the country and the co-operative banks may also go in for rate cuts to sustain in the business.

He feels that "Water will find its own level."

However, the co-operative banks are eagerly waiting for the RBI's mid-term review of monetary policy that will be held this month-end and would take any decision after the declaration of the policy.

The lending rates in home loans for the co-operative banks in Gujarat generally range between 9 per cent and 13 per cent. It is expected that the co-operative banks might go for lending rate cuts up to 1 per cent, but it depends on the outcome of the mid-term review of monetary policy.

A similar view was expressed by Shasikant Bugde of Cosmos Co-operative Bank Ltd (Cosmos Bank), one of the oldest urban co-operative banks in the country. One year ago Cosmos Bank made large scale acquisitionS of co-operative banks in Gujarat and is now a leading player in the co-operative banking sector in Gujarat.

According to Bugde, "We have to go in for rate cuts if (co-operative bank) want to match the competition given by the public sector and private sector banks." But giving a cautionary note, he said, "But obviously we will not be able to get as below (lower of lending rates) as nationalised and private sector banks go for." Commenting on the reduction of leading rates, Bugde said,

"We at Cosmos Bank are also eagerly waiting for RBI monetary policy review and after that only any final decision can be taken."

The Kalupur Commercial Co-operative Bank Ltd in Ahmedabad is bit relaxed over cutting lending rates on home loans by the private and public sector banks as Kalupur Bank has already exhausted the disbursement of the home loan quota that has been set by the bank.

As per a source in Gujarat Urban Co-operative Banks Federation, the fall in the lending rates by the co-operative bank can only be if the co-operative bank sense that the competition faced in reduced lending home loan will persist for long duration.

He further said that its factually hard for the co-operative banks to give loan at lower interest rates as leaving aside the major co-operative banks, most of the co-operative banks in Gujarat are small in size.

This banks can not afford to go for rate cuts immediately but if the lower lending rates persist for long then even they have to go for rate cuts in order to prevent its customer from switching over to private sector and public sector banks for loans.

However, the urban co-operative banks have one unmatched competitive edge over the public and private sector banks, is that it also catering to people who do not have proper documentation required for a loan and are more nearer to its customer.