Co-operative banks may reduce lending rates for home loans after credit policy announcement

With most public and private sector banks having reduced the lending rate on retail loans, urban co-operative banks are expected to follow their lead.

The co-operative banks are expected to take a decision on lending rates after the announcement of the Reserve Bank of India’s credit policy later this month.
 
For instance, lending rates for housing loans in Gujarat range between 9 per cent and 13 per cent. It is expected that the co-operative banks may slash the lending rate up to 1 per cent. Cosmos Co-operative Bank Ltd and Kalupur Commercial Co-operative Bank Ltd in Ahmedabad and the Gujarat Urban Co-operative Banks Federation are the major players in this sector in Gujrat.

Banks are of the opinion that co-operative banks too will reduce lending rates if they face stiff competition from their peers in the home loan sector for a sustained duration. 
 
Most co-operative banks are small in size and it is difficult for them to lend loans at lower interest rates. However, if these lower lending rates continue to remain low in the market for a while, the co-operatives may be forced to reduce the rates to stop customers from switching over to other banks.
 
However, a limitation to urban co-operative banks’ customers is that such lending institutions also cater to loan seekers who do not have proper documentation required for a loan.  This last line makes no sense. Or, elucidate how it affects the co-op banks.