State-owned Union Bank of India has taken the lead in reducing both fixed and floating rates by 50 basis points for housing loans below Rs 20 lakh.The cut in interest rates will be applicable for fresh loans, effective May 7.

Effectively, the bank has now the cheapest housing rates for the under-Rs 20 lakh loan segment. After the cut, for up to five years, the bank's fixed rate and floating rate are pegged at 10.75% and 10%, respectively. The rates are the same for loans above 15 years as well.

The rate cut follows the Reserve Bank of India’s (RBI) recent policy announcement reducing the risk weighting on housing loans up to Rs 20 lakh by 50%. The RBI also recently included housing loans below Rs 20 lakh as a part of priority sector loans.

Almost 85% of home loans of the banking industry fall in the under-Rs 20 lakh category.
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  • Raise in risk weight for commercial real estate!

    While the RBI recent policy has brought down the risk weight for home loans below Rs 20 lakh, there is a raise in risk weight for commercial real estate.

    The Reserve Bank of India is in the process of reworking the definition of commercial real estate. The revision is aimed at taking hospitals and educational institutions out of the ambit of commercial real estate.

    It has been observed that clubbing the loans to hotels and hospitals under commercial real estate has swelled the banks exposure to sensitive sectors, giving the impression that they were still indulging in risky business despite the Reserve Bank of India’s warnings on checking the asset bubble.

    Bankers, on the other hand, explained that the business dynamics and risk profiles of hospitals, hotels and educational institutions are different from the real estate sector.

    But they have been clubbed together under commercial real estate, a sector for which the RBI has put stiff risk weights to slow down bank funding. The central bank raised risk weightage from 100 per cent to 150 per cent in a span of less than 21 months.

    This had direct implications for pricing loans to hotels and hospitals. While giving loans for hotels and hospitals, banks have to factor in the cost of risk weight, leading to higher lending rates, a senior Bank of India official said.

    Educational institutions and hospitals are part of the social infrastructure, so they should be viewed differently while prescribing risk weights according to the BoI official.

    This step seems to provide an incentive for banks to bring down rates on retail housing loans.
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  • Nice Information on union banks rates
    Originally Posted by mishthi
    State-owned Union Bank of India has taken the lead in reducing both fixed and floating rates by 50 basis points for housing loans below Rs 20 lakh.The cut in interest rates will be applicable for fresh loans, effective May 7.

    Effectively, the bank has now the cheapest housing rates for the under-Rs 20 lakh loan segment. After the cut, for up to five years, the bank's fixed rate and floating rate are pegged at 10.75% and 10%, respectively. The rates are the same for loans above 15 years as well.

    The rate cut follows the Reserve Bank of India’s (RBI) recent policy announcement reducing the risk weighting on housing loans up to Rs 20 lakh by 50%. The RBI also recently included housing loans below Rs 20 lakh as a part of priority sector loans.

    Almost 85% of home loans of the banking industry fall in the under-Rs 20 lakh category.
    CommentQuote
  • The Union Bank housing loan for upto Rs 30 lacs is now at 8.5% fixed for 3 years.
    CommentQuote