Co-op banks attribute high rates on home loans to borrowing cost

Though private and nationalised banks have reduced interest rates on home loans to around 6.5-7.5 per cent in the last one year, co-operative banks continue to provide such loans at 10 per cent and above.

"Our interest rates are higher as compared to various private and nationalised banks because our cost of borrowing is higher. We offer interest rates of around eight per cent to our depositors as compared to five per cent paid by various private and nationalised banks. Our business remains unaffected as most of the customers of the banks are our members," said T D Bhuptani, general manager, Nutan Nagrik Saharari Bank.

Nutan Nagrik Sahakari Bank offers housing loans at 10 per cent interest on a daily reducing balance basis.

The maximum loan amount is Rs 10 lakh, which can be availed of for a maximum of 10 years.

"We do not want to compete with nationalised or private banks. Our target market is completely different from other banks. We offer loans to the lower segment of the society. More than 60 per cent of our advances are in the priority sector," said Dineshbhai M Amin, director, The Kalupur Commercial Co-operative Bank Ltd.

Although private and nationalised banks offer home loans at low interest rates than co-operative banks, a customer has to pay various hidden charges apart from interest rates.

Most of the private and nationalised banks charge a processing fee of around one per cent of the loan amount, apart from documentation charges which vary from bank to bank.

In most of the cases, customers who avail of loans from private and nationalised banks can not prepay or part-pay loans in the initial years.

Even customers need to pay pre-payment and part-payment charges of two per cent of the outstanding loan amount.

For availing of loans from co-operative banks, one needs to become the member of the bank, or an introduction from a member of the bank is needed.

In the financial year 2002-2003, Nutan Nagarik Sahakari Bank had a share capital of Rs 5 crore, while the reserve and surplus of the bank stood at Rs 2 crore. The bank had a deposit base of Rs 196 crore against advances of Rs 99 crore. The net profit of the bank stood at Rs 5.5 crore.

"The bank has a strong base of 21,000 members and had advanced Rs 6 crore in the housing loan sector. The bank expects to reduce the interest rates to nine per cent from next financial year," said Tushar G Shah, officer advances, Nutan Nagarik Sahakari Bank.

"The bank has advanced more than Rs 1,569 lakh to 823 customers in the housing loan sector as on December 13, 2003.

"The average size of loan amount is Rs 2 lakh," said Hemant V Upadhyay, senior chief executive, development and training, The Kalupur Commercial Co-operative Bank.