Home, sweet home!...PSBs unveil special loan package

Just a few days after unveiling the fiscal stimulus package and fresh round of rate cuts, the Government went a step further and launched a special housing loan package for budget homes. Nationalised banks brought cheer to small home loan borrowers by cutting rates under a new package. Loans up to Rs20 lakh will now be available at 8.5-9.25% a year for tenures up to 20 years. The margin has been reduced to 15%. The offer will be valid only for new loans up to June 30, 2009. Currently, the interest rate on these loans average around 10% for most PSU banks.

Under the scheme, the interest rate on home loans up to Rs5 lakh, for a maximum period of 20 years, will not exceed 8.5% for the first five years. The margin for this segment has been reduced to 10%, from the current 20-25%. A borrower can get a home loan of up to 90% of the value of the property.

During the first five years, if any bank introduces a home loan product at a lower rate, then the borrowers will be offered that rate. After the first five years the interest rate will be reset from the date of the first drawal and borrowers have the option to go for fixed or floating rates. The package does not apply to existing home loan borrowers and cannot be swapped with an existing loan. The move could put some pressure on private and foreign banks to cut home loan rates.

Public sector banks also announced a package for the 40-lakh strong small and micro units which are reeling under the impact of high interest costs and economic slowdown. The interest rates for all existing and new loans for micro industries will be brought down by 100 basis points. In the case of small and medium enterprises where banks have fund based exposures up to Rs100mn, the interest rate will be cut by 50 basis points.

However, realty players cried foul, saying that the package announced by the state-run banks will not help in reviving the crisis for the Indian realty sector, which is facing the worst downturn in the last 10 years, because of high interest rates. Meanwhile, some media reports said that the Government may increase the upper end of the home loan package from Rs20 lakh to Rs30 lakh in the next round of stimulus program.