The Hindu Business Line : Hold home loan rates, Chidambaram tells banks

NOT FOR NOW: The Finance Minister, Mr P. Chidambaram, flanked by the Chairman of PNB, Mr S.C. Gupta (left), and the Chairman and Managing Director of Canara Bank, Mr M.B.N. Rao, at a meeting with chief executives of public sector banks in the Capital on Monday. - Kamal Narang

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New Delhi Feb 5 Home loan rates from public sector banks (PSBs) will not rise for a while, as Finance Minister Mr P. Chidambaram has directed them to maintain interest rates at current levels.

This comes despite the Reserve Bank of India's recent effort to make money more expensive in order to tackle surging inflation and the swelling loan books of banks.

Speaking to newspersons after a meeting with the Chief Executives of PSBs on Monday, Mr Chidambaram said: "With regard to the fact that the RBI has increased provisioning and risk weight only in four segments, excluding housing, I have requested PSBs to hold home loan rates at current levels."

He also said that housing was not included in the four segments - outstanding credit card receivables, loans and advances qualifying as capital market exposure, personal loans (excluding residential housing loans) and real estate sector - considered risk-prone by the RBI in the recent credit policy review statement.

The apex bank has increased provisioning for standard assets in these four segments from one per cent to two per cent.

Mr Chidambaram also directed the banks to moderate credit growth in the next 3-4 months in these four segments, keeping the RBI's advice in mind.

Meanwhile, banking sources said that some of the PSB chiefs made a case for spreading the additional one per cent provisioning burden over a period of, say, four quarters, with only 0.25 per cent in the current quarter, the last and crucial one for them.

According to official data, the housing loan exposure of these banks grew 111 per cent from Rs 53,737 crore in March 2004 to Rs 1,13,230 crore in September 2006.

On educational loans, Mr Chidambaram said that PSBs have been asked to reduce the variation in interest rates on loans up to Rs 4 lakh.