No Lower Interest Rate for Home Loans below Rs 20 lakh

May 21, 2007	(1 votes, average: 5 out of 5)  Loading ...
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Contrary to what the Reserve Bank of India (RBI) asked banks to reduce interest rates on home loans below Rs 20 lakh in the housing sector, they are planning to bring a further hike in interest rates on the same.

In the April credit policy, the apex bank has reduced risk weightage on home loans below Rs 20 lakh. The move was taken considering passing the benefits to customers. On every loan, a bank advances; it has to set aside capital in its books. The required capital is evaluated by the risk weightage or the regulator’s perception of a risky undertaking of the loan.

The risk weightage was lowered from 75 basis points to 50 basis points, which means that for every Rs 100 of home loans, a bank will now need to keep a capital of Rs 4.50 aside against Rs 6.75 earlier.  This is in regard to a 9% capital to risk weightage ratio that banks will now be maintaining.

Nearly, all the banks have brought a rise in their offered interest rates on home loans above Rs 20 lakh. The only exception remains Union Bank of India. However, the banks didn’t appear inclined to stay in step with the guidelines released by the RBI to pass on the benefits to the customers. Justifying their stand, a senior bank official says, “The step to lower risk weightage frees bank’s capital that can then be utilized to add to lending or reducing lending rates for existing customers.  And we decide to lend more instead of bringing a drop in the rates.”

State Bank of India, the largest bank in India, will not reduce interest rate on home loan below Rs 20 lakh. Then there is ICICI Banks which too seems to maintain the similar stand.

Surprisingly, housing finance companies do not appear to be in a rush to reduce interest rates as the regulator, National Housing Bank, has not revised the risk weightage downwards in line with the banking sector.

News Published Under:   Home Loans |

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