FinMin proposes incentive to borrowers of small home loans
Union Finance Minister P. Chidambaram has urged banks to lower loan rates for buyers of small homes, as risk rates on such loans are bare minimum.
HDFC Bank to acquire Centurion Bank in $2.4 billion share-swap dealAccording to Chidambaram, housing is a major driver of the economy and the banks can give incentive to borrowers of housing loan of less than Rs.20 lakh by lowering interest rates.
As 80 percent of loans sought by borrowers are well within the range of Rs.20 lakh and there is hardly any record of default in repayment of this amount, Chidambaram said that the Reserve Bank of India (RBI) can provide interest relief for those who borrow within this limit.
Speaking to industry body, ASSOCHAM, the finance minister said, "I made a number of efforts to impress upon bankers in this regards. It is a constant effort that I will have to make. Bankers will have to take a call, RBI will have to take a call."
Home loans form 12-35 percent of loan portfolios of banks. The total housing loan portfolio of banks and housing finance institutions is about Rs.2,00,000 crore ($50 billion) of which state-owned banks account for more than Rs.1,40,000 crore ($35 billion) as of March last year.
According to RBI, home loans have grown by a modest 15 percent as of January 2008.
Earlier, following the finance minister's call for a cut in February, some public sector banks such as the State Bank of India, Canara Bank, Allahabad Bank and the Bank of Baroda had reduced their general lending rates by 25 to 50 basis points (0.25-0.50 percent).
Most banks currently charges home loans ranging between 9.5-12 percent.
"We have the lowest interest rate in the market at 9.25 percent. So there is no scope of cutting it any further," The Telegraph quoted K. Raghuraman, executive director, Punjab National Bank, as saying.
However, Calcutta-based Uco Bank said it may slash housing loan rates by 50 basis points within March 15.
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