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Friday, Mar 07, 2008
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Small home loans may cost less

Special Correspondent

Chidambaram for cut in interest rates; says it is for banks and RBI to decide

NEW DELHI: Small home loan borrowers may soon have enough reason to cheer. Bank loans up to Rs. 20 lakh are likely to cost less with Finance Minister P. Chidambaram on Thursday favouring a cut in the interest rates.In an interaction with the Associated Chambers of Commerce and Industry of India (Assocham), Mr. Chidambaram said: “I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow [for housing] up to Rs. 20 lakh, must be lowered.”

He, however, made it clear that it was for banks and Reserve Bank of India (RBI) to take a call on this issue. “I made a number of efforts to impress upon the bankers in this regard ...it is a constant effort that I will have to make...the bankers will have to take a call, [the] RBI will have to take a call.”

Nearly 80 per cent of housing loans fell in the category of below Rs. 20 lakh and these loans involved less risk than those above that amount. Therefore, banks had incentives to lend to the borrowers at lower rates of interest.

Mr. Chidambaram pointed to the unenviable position of the RBI Governor in trying to strike a balance between low inflation and high growth. “He [RBI Governor] can never please everyone. It is his judgment call what should be the interest rates in order to contain inflation and promote growth,” he said. From the government’s point of view, it was important to promote growth without stoking inflation.

Home loans comprise about 12-35 per cent of the total loan portfolio of banks. The loans given by banks and housing finance firms add up to about Rs. 2,00,000 crore.

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