Public sector banks are likely to announce 50-100 basis point reduction in interest rate on home loans up to Rs 20 lakh. The government is considering an interest subvention for loans below Rs 5 lakh.
Banking sources said that banks may provide loans up to Rs 5 lakh at around 8.5 per cent, while those between Rs 5 lakh and Rs 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 9.5-10.5 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 5-20 lakh,” a public sector bank chief who attended a meeting to discuss the package said.
To facilitate banks to lend at these rates, it is likely that government and the Reserve Bank of India (RBI) will offer incentives to provide a fillip to low-cost housing.
Sources said that RBI may offer further relaxation in risk weightage for these category 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 actual loan amount.
A relaxation in risk weights will provide relief to banks as the cost will come down.
The other incentives that were discussed at the meeting included a waiver of the 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). In the next one or two days some package will be formalised,” Indian Banks Association Chairman T S Narayanasami said after meeting Finance Secretary Arun Ramanathan.
Indian Banks’ Association has been tasked with finalising the package in consultation with all member public sector banks after a cost-benefit analysis.
