Canara Bank rolls out fixed-floating home loan
The Economic Times, March 5, 2009, Page 7
Our Bureau MUMBAI
AFTER State Bank of India, it’s the turn of yet another public sector bank, Canara Bank, to offer a combination of fixed and floating rates for home loan borrowers. Canara Bank has however taken one step further than SBI — the bank that froze interest payments for the first year and subsequently linked payments to the then prevalent floating rate — by stepping up the fixed rate in the first five years and subsequently offering a floating rate of two percentage points below the benchmark prime lending rate. By this, the scheme aims to obviate uncertainties over interest rate movements.
Interestingly, the new scheme introduced by Canara Bank is set to compete not just with HDFC but also with SBI since it allows transfer of loans. This means a home loan customer of other bank can now switch over to Canara Bank. The bank has decided to fix loan rates for 20 years by applying different rates to varying slabs. For home loans up to Rs 30 lakh, the country’s second largest PSU bank proposes to charge a fixed rate of 8.25% in the first year and a fixed rate of 9.25% from the second to the fifth year. From the beginning of the sixth to the twentieth year the bank will charge borrowers 200 basis points below the then prevailing BPLR.
For loans above Rs 30 lakh, but below Rs 99 lakh, the bank will charge 50 basis points more. This will work out to a fixed rate of 8.75% for first year, 9.75% from the second to fifth year and 250 bps below the then prevailing BPLR subsequently. The bank has fixed a floor rate of 10% for the period from sixth to the twentieth year. This means that even if the bank’s PLR falls below 12% to, say, 11.5%, the interest rate charged to the customer will be 10% and not 9.5%. Further, to attract customers, Canara Bank has waived off the processing fees.
The bank has also lowered auto loan rates from 12% to 11%. The new rate will be fixed for a term of three years and subject to change, subsequently. The home loan scheme is open up to December 2009, substantially longer than the SBI scheme, which is open up to April. Industry observer opine that given the widespread expectation of a further softening in property prices, home loan borrowers will be better positioned to negotiate for favourable rates and avail of the Canara Bank scheme too.
AC Mahajan, chairman and managing director, Canara Bank, said that the purpose of keeping the scheme open for a longer period is aimed at giving the customer a better opportunity to buy a house at an affordable price. “After meeting with various authorities, we realised that they were uncomfortable with banks not disclosing the EMI for the entire loan tenure. They were of the view that the customer had the right to know the interest rate during the life of the loan, Mr Mahajan said. “We have not only addressed that problem but also taken measures to kickstart demand for the housing sector by offering the scheme up to December. Our purpose is to pass on the benefit to those sections of society which are least vocal, and not strong and capable of negotiating individually for better rates of interest.”
In a recent meeting with CEOs of large banks, RBI had asked SBI to ensure that home loan borrowers who have availed of its new 8% scheme are not jolted by rude shocks at a later stage. RBI had even asked SBI to indicate to their customers about the likely EMIs which they would have to pay after one year.
The Economic Times, March 5, 2009, Page 7
Our Bureau MUMBAI
AFTER State Bank of India, it’s the turn of yet another public sector bank, Canara Bank, to offer a combination of fixed and floating rates for home loan borrowers. Canara Bank has however taken one step further than SBI — the bank that froze interest payments for the first year and subsequently linked payments to the then prevalent floating rate — by stepping up the fixed rate in the first five years and subsequently offering a floating rate of two percentage points below the benchmark prime lending rate. By this, the scheme aims to obviate uncertainties over interest rate movements.
Interestingly, the new scheme introduced by Canara Bank is set to compete not just with HDFC but also with SBI since it allows transfer of loans. This means a home loan customer of other bank can now switch over to Canara Bank. The bank has decided to fix loan rates for 20 years by applying different rates to varying slabs. For home loans up to Rs 30 lakh, the country’s second largest PSU bank proposes to charge a fixed rate of 8.25% in the first year and a fixed rate of 9.25% from the second to the fifth year. From the beginning of the sixth to the twentieth year the bank will charge borrowers 200 basis points below the then prevailing BPLR.
For loans above Rs 30 lakh, but below Rs 99 lakh, the bank will charge 50 basis points more. This will work out to a fixed rate of 8.75% for first year, 9.75% from the second to fifth year and 250 bps below the then prevailing BPLR subsequently. The bank has fixed a floor rate of 10% for the period from sixth to the twentieth year. This means that even if the bank’s PLR falls below 12% to, say, 11.5%, the interest rate charged to the customer will be 10% and not 9.5%. Further, to attract customers, Canara Bank has waived off the processing fees.
The bank has also lowered auto loan rates from 12% to 11%. The new rate will be fixed for a term of three years and subject to change, subsequently. The home loan scheme is open up to December 2009, substantially longer than the SBI scheme, which is open up to April. Industry observer opine that given the widespread expectation of a further softening in property prices, home loan borrowers will be better positioned to negotiate for favourable rates and avail of the Canara Bank scheme too.
AC Mahajan, chairman and managing director, Canara Bank, said that the purpose of keeping the scheme open for a longer period is aimed at giving the customer a better opportunity to buy a house at an affordable price. “After meeting with various authorities, we realised that they were uncomfortable with banks not disclosing the EMI for the entire loan tenure. They were of the view that the customer had the right to know the interest rate during the life of the loan, Mr Mahajan said. “We have not only addressed that problem but also taken measures to kickstart demand for the housing sector by offering the scheme up to December. Our purpose is to pass on the benefit to those sections of society which are least vocal, and not strong and capable of negotiating individually for better rates of interest.”
In a recent meeting with CEOs of large banks, RBI had asked SBI to ensure that home loan borrowers who have availed of its new 8% scheme are not jolted by rude shocks at a later stage. RBI had even asked SBI to indicate to their customers about the likely EMIs which they would have to pay after one year.
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