New Delhi: With major national banks reducing the interest rates on various retail loans especially home loans, co-operative banks are feeling the heat and are likely to announce rate cuts on their loans.

Jyotindra Mehta, MD, Rajkot Nagarik Shahakari Bank Ltd (RNSBL) acknowledged the fact, "the reduction in the lending rates by the nationalized and private sector banks will certainly have impact on the co-operative bank’s business on home loans and vehicle loan."

He felt that the co-operative banks are also a vital part of Indian banking sector and they too must cut the rates in order to stay competitive. RBI's mid term review of monetary policy expected to be announced by 31 October this year is eagerly awaited by the entire banking sector. Co-operative banks will most likely announce their rate cuts after this review.

Home loan rates by co-operative banks hover in the 9 percent to 13 percent range and to match the interest rates offered by other public and private sector banks, they might go in for an 1 percent interest rate reduction.

Co-operative banks in India though, not as large as their public and private sector counterparts, enjoy a more loyal clientele and offer loans at minimal documentation. With their interest rates poised at the higher end, they might loose out their customers to bigger players. However, the co-operative banks are keeping their fingers crossed.

Co-operative banks have been functioning in India for over 100 years. Governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965, the cooperative banks are regulated by the RBI.

In rural areas co-operative banks provide personal finance, farming and rural economy related services. In urban areas co-operative banks play important role in promoting self-employment and small scale industries. They also provide home finance, consumer finance and personal finance services to their clients.