Banks have divided opinions over reducing home loan rates

The Reserve Bank of India (RBI) has reduced the risk weight on home loans up to Rs. 30 lakh, expecting the banks to reduce interest rates on housing finance. The banks prefer to wait and consider the decision of reducing rates.

According to media reports, M V Nair, chairman and managing director, Union Bank of India (UBI) said that banks as it is offer different rates for home loan below and above Rs. 20 lakh. With the reduction in risk weightage for housing loans between Rs. 20 lakh- Rs. 30 lakh, the lowered rates extended to the consumers could decrease interest rates by about 50 basis points.

Bank of India, executive director, K R Kamath was quoted in another media report stating that the decision of reducing rates needs careful consideration in the face of pressure on the lending rates due to a series of hikes on the Cash Reserve Ratio (CRR) which has left banks with lesser money to lend and increase the cost of funds.

Yet another bank official, Chanda Kochhar, joint MD and CFO, ICICI Bank has said that risk weight plays a smaller role while deciding housing loan rates and rates are sensitive to liquidity conditions and the cost of money.

Meera Sanyal, country executive, ABN Amro Bank says that reducing interest rates on home loan are independent decisions of various banks will depend on one's liquidity position.

Between April, 2007 and February 15, 2008, rising home loan rates have led to a slowdown in the growth of home loans. The home loan portfolio of banks grew at 12 per cent (Rs. 26,930 crore as on February 15, 2008) as compared to 25.8 per cent growth (Rs. 46,019 crore) in the same period during the previous year.

Punjab National Bank (PNB) chairman K.C. Chakrabarty told the media that an immediate rise in interest rates is not on the cards though a decision could be made after analysis of the current situation.

While most bankers are adopting the watch-and-watch policy, Romesh Sobti, managing director and chief executive, IndusInd Bank said that some banks may have to increase interest rates and would push lending rates marginally to retain margins.