Chidambaram asks banks to slash interest rates on home loan upto Rs 20 lakhs

New Delhi, Mar 06 : Considering public demand, Finance Minister P Chidambaram on Thursday asked banks and RBI to slash interest rates on housing loans of Rs 20 lakhs.

Interacting with the industry chamber Assocham, Chdambaram said, "I made a number of efforts to impress upon bankers in this regards ... it is a constant effort that I will have to make... bankers will have to take a call, RBI will have to take a call."

He said 80 per cent of all housing loans fall in the category of below Rs 20 lakhs and incidentally these loans have less risk than those above Rs 20 lakhs. Therefore, bankers would have incentives to lend to these borrowers at lower interest rates.

He said, "The RBI governor's position to strike a balance between low inflation and high growth and never to please everyone is unenviable. He decides the interest rates in order to contain inflation and promote growth."

Recently, housing finance company HDFC set the ball rolling by cutting a 25 basis point cut in its retail prime lending rate (RPLR) to 13.75per cent with effect from February 1. This has put pressure on other lenders to follow suit.

The State Bank of India, currently, charges between 10-11.5 per cent for loans up to Rs 20 lakh.

Home loans form 12-35 per cent of loan portfolios of banks. The total housing loan portfolio of banks and housing finance firms is about Rs 2,00,000 crore of which state-owned banks account for more than Rs 1,40,000 crore as of March 2007. Home loans have grown by a modest 15 per cent, according to RBI. Personal loans account for around Rs 4,50, 000 crore as of January 2008.

ANI