Banks cut home loan rates

Public sector banks on Monday announced that home loans up to Rs 5 lakh (Rs 500,000) would be given at a maximum interest rate of 8.5 per cent, while those between Rs 5 lakh and Rs 20 lakh (Rs 500,000 and Rs 2 million) would be offered at 9.25 per cent.

Besides, the banks would not charge any processing fees and pre-payment charges for loans up to Rs 20 lakh, and would also provide free insurance cover, the Indian Banks Association said.

The package looks at reviving the demand in the housing industry.
# Interest rates not to exceed 8.5% for loans up to Rs 5 lakh
# Interest rates for loans between Rs 5 lakh and 20 lakh to be 9.25%.
# No processing fee or pre-payment charges, free insurance cover for loans up to Rs 20 lakh.
# PSU banks announce one percentage point cut in loans for micro, small and medium enterprises (MSMEs).

However, it is not yet clear if the existing home loan borrowers will benefit from the special home loan schemes unveiled by state-owned banks on Monday.

Outlining the new housing loan package in accordance with the stimulus package announced by the government on December 7, State Bank of India chairman O P Bhatt said the interest rate under the two schemes could come down, but would not go up beyond the threshold limit of 8.5 and 9.25 per cent for a five-year period.

The offering under the packages would be made till June 30, next year, Bhatt said, adding that after the lock-in period of five years the borrowers could look in for free or floating rates that could change in accordance with market conditions.

To make the package attractive, the public sector banks would give the loans at a margin of 10 per cent up to Rs 5 lakh and 15 per cent for loans between Rs 5 lakh and Rs 20 lakh, and in either case, banks would offer free insurance cover, Bhatt said.

Leading private lenders, including ICICI Bank and HDFC, appeared favourably inclined to cut their rates, with sources saying the two lenders would study the PSU banks' package before taking a call.

Sources said any decision would be taken after ascertaining whether PSU banks are getting any government subsidy for implementing the package.

The banks have also decided to cut the lending rates for the micro and medium enterprises by 100 basis points.