Contrary to the current trend of declining home loan rates, Union Bank of India has hiked interest rates for fresh home loans by 0.50 per cent across all maturities of fixed and floating rate options, effective January 1, 2004.

The state-owned bank also effected a 0.25-1.25 per cent cut in interest rates for new loans extended to agriculture and small-scale industries for up to Rs 500,000 from January 1.

• Housing and Home Loans

"The rates on housing loans have bottomed out and we decided to raise rates to check prospects for delinquency like defaults on payment," Union Bank Chairman V Leeladhar told reporters in Mumbai on Monday.

Leeladhar said the floating rate for home loans would now be linked to benchmark prime lending rate (BPLR), which currently stands at 10.75 per cent. The bank is the first to introduce BPLR.

The new rates for housing loans up to five years under fixed rate category would be 8.50 per cent (8.00 per cent being previous), while under float rate option it would be 8.25 per cent (7.75 per cent), he said.

For loans in the five- to ten-year category under fixed option it would be 9.00 per cent (8.50 per cent) and under floating rate 8.75 per cent (8.25 per cent), he added.

Explaining the rationale for hike in rates, Leeladhar said: "Data on lending by banks in housing segment has thrown up indication of delinquency. Though rate is almost insignificant, it is still above rates expected or anticipated earlier."

Union Bank's delinquency rate for housing credit was below 1 per cent and assessment procedure was stringent, he said.

Asked if the hike in rate would come in way of growing home loan portfolio, he said: "The bank's home loan folio was about Rs 2,700 crore (Rs 27 billion), 10 per cent of total lending, and we will not lose business. In fact, their share is expected to reach 15 per cent by March 2004."

On the revision in the farm and SSI rates, he said, "Corporates have benefited from falling interest rates but there is feeling that agriculture and SSI sector were left out."

The rate for farm loans up to Rs 50,000 would be 8.75 per cent (9.00 per cent earlier), Rs 50,000 and up to Rs 200,000 is 9 per cent (10 per cent) and between Rs 200,000 and Rs 500,000 is 10.75 per cent (12 per cent).

Leeladhar said SSI sector would also get benefit of revision in interest rates and loans up to Rs 50,000 would attract rate 8.75 per cent (11 per cent being earlier).

The rate for loans from Rs 50,000 up to Rs 200,000 would be 8 per cent (11 per cent) and in bracket of Rs 200,000 up to Rs 500,000 would be 10.75 per cent, he added.

The bank has also started extending collateral free advances to small units for loans up to Rs 25 lakh (Rs 2.5 million).