Union Bank cuts home loan rate by 50 bps

Union Bank of India has become the first bank to reduce the interest rate on home loans up to Rs 20 lakh by 50 basis points.

This follows the Reserve Bank of India's decision to reduce risk weight to 50 per cent for housing loans up to Rs 20 lakh. In April, the bank had raised its prime lending rate by 75 basis points to 13.25 per cent while sparing existing home loan borrowers.

However, other leading banks such as State Bank of India and Bank of Baroda will not reduce their loan rates. Bank of Baroda, which had effected a 50 basis points hike in its home loan rates last month, has no immediate plans to pass on the benefit of reduction in risk weight.

"We have no immediate plans," said a senior official of the bank. The bank had not increased its rate while raising the PLR.

A State Bank of India official also said the bank was not thinking of reducing the housing loan rates.

Union Bank's Executive Director R S Reddy said the review of the home loan portfolio indicated that there was room to cut loan rate marginally without impacting the financial parameters. Hence, the bank decided to pass on the benefit to its customers.

The public sector bank did not raise the home loan rate in the second half though it increased the benchmark prime lending rates.

The RBI reduced the risk weight on home loans up to Rs 20 lakh to 50 per cent from 75 per cent for a year, which would free up one-third of the capital allocated for banks' loan portfolios of up to Rs 20 lakh. The reduction would be reviewed based on default experience in the home loan portfolios.

Y V Reddy, governor, RBI, had urged banks to pass on the benefit of this reduction to customers. Public sector banks Punjab National Bank and Oriental Bank of Commerce, raised home loan rates by 1 percentage point and 0.75 per cent, respectively.