Bangalore: The cost of owning a house in Bangalore's booming property and real-estate market will soon go up. Interest rates on home loans, both fixed and floating, are set to be increased by three major public sector banks based in Bangalore in the wake of a decision taken by the Reserve Bank of India (RBI) on April 18 to raise the provisioning requirements for banks on home loans above Rs. 20 lakh.

Though many private and public sector banks across the country have raised home loan rates in the wake of the RBI decision, Canara Bank, Vijaya Bank and Syndicate Bank have so far refrained from announcing a rate hike on home loans in view of the intense competition in the home loan sector.

But after studying the impact of the RBI decision on their operations, these three banks are examining a rate increase to offset any erosion in profits while complying with the RBI norms that entails setting aside more capital.

Canara Bank is faced with raising home loan rates in the span of a month. The bank recently increased the interest on floating rate loans to 8.5 per cent across all tenures ranging from one year to 20 years and above. Earlier, the bank had three separate slabs for floating rate loans with tenure of up to 5 years attracting a rate of 7.5 per cent, up to 10 years a rate of 8.25 per cent and those above 10 years a rate of 8.5 per cent.

In the case of fixed rate loans, the interest rate was raised to 9.25 per cent for loans up to five years while those above five years was increased to 9.5 per cent. The new rates came into effect from May 1.

A Canara Bank official said that the trend is towards interest rates going up in line with market conditions.

Meeting to be held

Apart from the increase in the interest rates on deposits, the cost of mobilising funds for the bank have also gone up. "Naturally, the lending rates also have to go up. We will be convening a meeting shortly to consider a further hike in interest rates," he told The Hindu .

Syndicate Bank is "also in the process of hiking the rates," a senior official said. The proposed rate hike would be across the board irrespective of the tenure and the amount though the RBI had raised the provisioning requirements from 0.4 per cent to 1 per cent on home and commercial real-estate loans beyond Rs. 20 lakh, he said.

Prime lending rate

The prime lending rate (PLR) of Syndicate Bank is presently 11 per cent, and its lending rate for floating loans ranges from 7.25 per cent to 8.25 per cent depending on the tenures while those for fixed rate loans varies between 8 and 9 per cent.

Apart from examining the possibility of a rate increase, Vijaya Bank is also looking at raising the cap for exposure to the real-estate sector, which currently stands at 30 per cent of the total advances of the bank. Besides, it is considering an increase in the PLR beyond the existing level of 11 per cent.

The bank's lending rates for floating loans ranges from 7 per cent to 8.25 per cent for different tenures, whereas rates for fixed loans varies from 8 per cent to 9.5 per cent.

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