Bankers undecided on home loan interest rates

APRIL 27, 2007: Borrowers of home loans of up to Rs 20 lakh may have to wait some more time for a rate cut. Bankers have still to take a view on whether interest rates for this category of home loans will get the benefit of the risk weight reduction offered by RBI in its credit policy.

Borrowers of home loans up to Rs 20 lakh may not get any relief from paying higher EMIs. The Reserve Bank, in its credit policy, announced that banks have to keep lesser capital aside for home loans below Rs 20 lakh. This means lower cost for a sub Rs 20-lakh home loan. But bankers are in no hurry to pass on this reduction in costs to borrowers.

Sources in five large PSU Banks told CNBC-TV18 that they are unlikely to reduce interest rates for home loans below Rs 20 lakh. They argue that since they were urged by the finance minister not to raise rates in January after RBI's repo rate hike, their loans are anyways cheaper by 1-1.5% compared to private lenders. Since they have taken a hit on their margins all these months, it may not possible for them to raise rates now.

These PSU bankers said that in case RBI steps in and hikes rates in the next few months, then they are likely not to pass on this added cost to borrowers of home loans below Rs 20 lakh.

Source: moneycontrol