PSU banks question viability of rate cut

State-owned banks said they are planning to approach the government under the umbrella of the Indian Banks Association seeking compensation to bridge the gap between the new rates for home loans up to Rs 20 lakh and their cost of funds.

They said with deposit rates ruling at 10 per cent and more and home loan rates now between 8.5 and 9.5 per cent, they are finding it difficult to maintain a viable net interest margin of 3.5 per cent.

Under the scheme, the banks will also not be able to charge processing or pre-payment charges for loans up to Rs 20 lakh, and also provide free insurance cover, making the viability of lending at these rates even more questionable.

Although bankers said they understand the government’s objective of pushing demand by cutting rates, they argue that some intervention will be required to make the scheme viable.