UCO Bank Likely To Cut Interest Rate On Home Loans By 0.50%

New Delhi: UCO Bank is likely to bring down loan rates by 50 basis points. The state-owned bank is scheduled to take a final decision on the proposal at a board meeting on March 15. It is not clear whether lower rates will be offered for home loans under Rs 20 lakh. The government had said that it is in favour of lower interest rates for home loans under Rs 20 lakh to meet demand. These loans constitute 80% of the advances classified under priority sector.

Smaller loans have less risk weight than those above Rs 20 lakh and, therefore, bankers have incentives to lend to these borrowers at lower interest rates. Several banks, including SBI, Canara Bank, Allahabad Bank and HDFC, have reduced lending rates by 25-50 basis points. The largest private bank, ICICI Bank, has said there could be softening of rates in the first quarter of the next fiscal. SBI charges 10%-11.5% for loans up to Rs 20 lakh. Mr Chidambaram''s recent call for softer interest rates could mean further lowering of interest rates in the home loan segment.

LICHFL To Provide Reverse Mortgage Loans

Mumbai: LIC Housing Finance Ltd (LICHFL) will now give reverse mortgage loans for senior citizens above 60 years. The loan will be given on single or on joint basis with the spouse, if the spouse is over 60 years. The reverse mortgage loan will be given at a fixed interest rate subject to reset every 5 years. Under the scheme, senior citizens can get the loan either on a monthly payment or a lump sum payment or a combination of both. The property evaluated for the loan should have at least 20 years of residual life.

ICICI Plans To Finance Home Loans Up To Rs 20 Lakh

Mumbai: ICICI Bank has decided to split its home loan business between the bank and its wholly owned subsidiary, ICICI Home Finance Company. The bank proposes to fund home loans only up to Rs 20 lakh, which qualify as priority sector lending. Home loans above Rs 20 lakh would be provided by ICICI Home Finance. Housing loans up to Rs 20 lakh carry a lower risk weight of 50 % for capital allocation purpose. Banks are required to direct 40 % of their loans towards priority sector, including agriculture and small-scale industries. Larger ticket-size loans carry a higher risk weight of 75 %.

The bank has recently received approval from the Reserve Bank of India (RBI) to infuse capital into the home finance company. Following this, the bank has invested Rs 500 crore in the company, taking the net worth of the company to Rs 800 crore at the end of December 2007. ICICI Bank is going ahead with a separate subsidiary for home finance, while public sector banks such as State Bank of India, Canara Bank and Punjab National Bank are considering merging their subsidiaries with themselves. Housing loans up to Rs 20 lakh form about 60 % of the banks'' mortgage portfolio. The average home loan ticket size is around Rs 10 lakh.

The total assets of the housing finance company stood at Rs 4,610.78 crore at the end of March 31, 2007. In the third quarter of 2007-08, the home finance company booked less than Rs 1,000 crore of home loans. ICICI Bank''s home loan book grew 12 % year-on-year to around Rs 60,000 crore at the end of December 2007. If the disbursement done at the end of the quarter in the home finance company were to be included, the growth in the home loan portfolio would be around 13-14 %.