The Hindu Business Line : PSU banks set to offer cheaper, easy home loans

New Delhi, Dec 11 Home loan borrowers looking for finance of up to Rs 20 lakh are likely to see a slew of concessions coming their way in the next few days. State-owned banks are close to finalising a package to give a boost to the housing sector by making such loans available at cheaper rates and under simpler terms.

The move to provide relief for home loan borrowers comes in the wake of the Government’s recent fiscal stimulus booster in which it promised that public sector banks (PSBs) would shortly announce a package for two categories – up to Rs 5 lakh, and between Rs 5 lakh and Rs 20 lakh.

Borrowers are now expecting at least 200-300 basis point cut in interest rates as relief under the package. They want interest rates on fixed rate home loans to come down to between 7 and 9 per cent say for a 10-year term period.

“The package that we are discussing will not be confined to interest rates. If we are going to stop with interest reduction, it will not augur well for the package. There has to be other incentives,” Mr T.S. Narayanasami, Chairman, Indian Banks Association (IBA), told reporters after an IBA meeting here on Thursday.

The Finance Secretary, Mr Arun Ramanathan, and senior Finance Ministry officials were also present at the meeting.

The IBA Chairman said that bankers were still discussing the modalities on how the package should be structured and that they had not come to any definite conclusion. Besides interest rate reduction, the public sector banks were also looking to include concession on margin requirements, waiving of processing fee for loans and changes in pre-payment clause in the package, Mr Narayanasami said.

PSBs are also looking at making credit more accessible and cheaper for small and medium enterprises (SMEs). Indications are that some form of interest subvention would be provided.

However, for the proposed interest concession on home loans up to Rs 20 lakh, Mr Narayanasami made it clear that no interest subvention was contemplated or even necessary.

“The whole exercise is to make interest affordable for housing and SME sectors. There will be a pragmatic view in cutting interest. We have not decided to what extent we will cut the interest rate. You wait for the package to be announced in a day or two,” he said.

Meanwhile, sources in the banking industry said that at today’s meeting the issue of cost of funds for banks was discussed, especially from the context of bulk deposits. The Finance Ministry had issued instructions that there should be no acceptance of bulk deposits outside the card rates.

Central public sector enterprises (CPSEs) were also instructed to strictly adhere to Finance Ministry guidelines and desist from inviting bids from banks for parking their surplus funds. The practice of inviting bids were leading to competition among PSBs and thereby raising their cost of deposits, which in turn led to increased lending rates, according to the Finance Ministry.

The Government was now closely monitoring, through a committee, as to whether PSBs as well as CPSEs were complying with the directions or not, sources said.