Interest on Home Loans may fall

Nationalised Banks have increased interest rates on home loans are not sustainable since demand for home loans on much cheaper interest rates have established a bench mark rate for home loans. After RBIs interventions and caution notice, Banks started taking extreme majors to reduce the risk of turning lendings into NPA. In spite of no major risk factor coming into way, banks started enhancing their basis points on home loans. Industry peers thinks that it is nothing but maximisation of profit on robust growth of real estate sector.

HDFC, the pioneer in home loan concept, still offer home loans at 11 % p.a and HUDCO kept it at 10.75%. Foreign Banks are reaping a good harvest after Nationalised Banks raised interest rates on home loan.

According to NHB, in 2003 to 2005, housing finance market witnessed 73% growth in sanctions. The trend continued till late 2006 when interest rates started climbing up. The demand for housing never declined. So does the demand for home loans.

Finance Ministry recently intervened the situation and compelled the banks to offer cheaper rate of interest for loans upto Rs.20 lakh. Housing and real estate is being in priority sector in RBIs list, banks are compelled to give loans for housing. According to sources, Finance Ministry have taken the matter very seriously and intend to bring out formula for reducing home loan interest offered by Banks.

In the process, banks will be asked to reduce the rate of interest. A PLR is soon likely to be announced by the apex bank. The action is likely to be in action by end of July this year.

With reduced demand for higher rate home loans, Priority sector lending norms of RBI and growing competition, housing finance institutions and banks are likely to reduce the floating rate of interest before October 2007.

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source: accommodationtimes.com