Home loan rates in Rs. 20-30 lakh to fall

In the Reserve Bank of India’s (RBI) annual credit policy meeting on April 29, 2008, the provisioning requirement has been lowered for home loans up to Rs. 30 lakh. Following the move, RBI expects the banks to pass on the benefits of reduced rates to loans consumers. According to media reports, currently 85 per cent customers are in up to Rs. 30 lakh category. In the total home loan portfolio, 40 per cent are on fixed rate.

Interest rates on home loans up to Rs. 20 lakh are charged 9.25-10.75 per cent, depending on the tenure. Loans over Rs. 20 lakh are priced 50-75 basis points higher.

Based on the revision of the provisioning requirement, home loans of Rs. 20-30 lakh will be charged at par with those below Rs. 20 lakh, but there will be no change in interest rates for loans below the threshold.

The move might give the banks’ lending business a much needed boost. 

Due to frequent revision of interest rates since 2007, there is a slowdown in the growth of loans. The home loan portfolio of banks grew just 12 per cent between April 2007 and February 15, 2008 (Rs. 26,930 crore) compared to 25.8 per cent growth (Rs. 46,019 crore) between April 2006 and February 15, 2007. Loans to individuals for housing grew 16.44 per cent to touch Rs. 1, 48,489 crore in March 2008 against Rs. 1, 27,522 crore in March 2007.