Banks want subsidy to cut home loan rates

Public sector banks are likely to announce a 50 to 100 basis point cut in interest rates on home loans up to Rs 20 lakh. The government is also considering an interest subvention for loans below Rs 5 lakh.

Banking sources said banks may provide loans up to Rs 5 lakh at around 8.5 per cent,and those between Rs 5 lakh and 20 lakh will carry an interest rate of 9.25 per cent a year. At present, interest rates on home loans below Rs 20 lakh, with a tenure of up to 10 years, is 9.5 to 10.5 per cent.

“The comfort level for banks is 8.5 per cent for home loans up to Rs 5 lakh and 9.25 per cent for Rs 5 lakh-20 lakh,” a public sector bank chief, who attended a meeting in Delhi to discuss the package, said.

To facilitate banks to lend at these rates, sources said that RBI may relax risk weights for these categories of housing loans if the banks reduce the margin money from 25 per cent to 10 per cent. At present, the risk weight is 50 per cent for home loans up to Rs 20 lakh.

A reduction in the margin requirement, or the part of the loan paid by borrower upfront, will mean that banks will have to provide more funds to the extent of the increase in the actual loan amount. A relaxation in risk weights will reduce the cost of the loan for the banks.

Other incentives that were discussed included a waiver of processing charges for home borrowers and a five-year lock-in period on interest rates.

Apart from housing, the public sector banks are also likely to give 50-basis-point concession in lending rates to Small and Medium Enterprises (SMEs) hit by the economic downturn.

“We have not come to any definite conclusion (on home loans). Some package will be formalised in the next one or two days,” Indian Banks Association Chairman TS Narayanasami said after meeting Finance Secretary Arun Ramanathan.