The Hindu Business Line : Chidambaram for lower rates on sub-Rs 20 lakh home loans

New Delhi, March 6 Pitching for lower interest rates on home loans up to Rs 20 lakh, the Finance Minister, Mr P. Chidambaram, on Thursday asked bankers to try and incentivise borrowers of such loans by lowering interest rates.

“I have made number of efforts to impress upon bankers that at least in respect of borrowers who borrow home loans of less than Rs 20 lakh, they should try and incentivise the borrower by lowering interest rates. That is a constant effort I am willing to make. Bankers have to take a call and the Reserve Bank of India has to take a call. But I will certainly bear in mind that there is public demand that interest rates for borrowers of housing loans up to Rs 20 lakh must be lowered,” Mr Chidambaram said at a post Budget meeting organised by Assocham here on Thursday.

He highlighted that 80 per cent of all home loans in the country were below Rs 20 lakh. As on end-December 2007, housing loans portfolio of banks stood at Rs 2,46,848 crore. It was Rs 2,24,481 crore as on March 31,2007.

Stating that risk weight for home loans below Rs 20 lakh was lower than loans above Rs 20 lakh, Mr Chidambaram said that bankers therefore have an incentive to lend to those borrowers at lower rate than those who borrow more than Rs 20 lakh.

Inflation worries

At the same time, he also noted that reduction of interest rates could lead to credit expansion, as found in 2005-06 and 2006-07, and this could be inflationary.

“The RBI Governor’s position is unenviable. His dharma is to control inflation. Interest rates are the single-most effective instrument to contain inflation. The RBI Governor strikes a balance between the need to promote growth through low interest rates and the need to contain inflation through high rates.

It is his judgment call as to what should be the interest rate in order to contain inflation and promote growth. I recognise from a government point of view that it is important to promote growth without stoking inflation. We have to be flexible and adjust according to the situation,” Mr Chidambaram said.

The Finance Minister said that he recognised that housing was a major driver of the economy.