Home loans cheaper as PSU banks cut rates

Mumbai: State-run banks will offer special rates on some loans to homebuyers and small businesses, as part of a government-led initiative to boost economic growth and shore up confidence amid a global liquidity crisis.

Government-owned banks will offer home loans up to Rs 500,000 at 8.5 per cent and between Rs 500,000 to Rs 20 lakh at 9.25 per cent, O P Bhatt, chairman of State Bank of India, said at a conference held by the Indian Banks Association.

The new home loan rates, part of a move to stimulate demand in the affordable housing segment, will be effective until June 30, 2009.

Currently, loans in that category cost borrowers more than 10 per cent. The banks will take a 10 per cent margin on home loans up to 500,000 rupees and 15 per cent margin on home loans up to 2 million rupees. They expect to disburse 150 billion to 200 billion rupees under the special home loan package by June 30, Bhatt said. The state run banks have also cut rates to micro businesses by 100 basis points.

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.

Bhatt said the interest rate under the two schemes could come down, but would not go up beyond the threshold limit of 8.5 per cent and 9.25 per cent for a five-year period.

The offering under the packages would be made till June 30 next year. After a lock-in period of five years 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 lakhs and 15 per cent for loans between Rs 5 lakh and Rs 20 lakhs, 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. The 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.

(With inputs from Reuters and PTI. )

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