Public sector banks led by State Bank of India (SBI), which together account for about 30 per cent of the home loan market, on Monday announced a reduction in interest rates on new home loans.
The special loan window will be available only for six months and is calculated to make private lenders lower rates in response.
Home loans up to Rs 5 lakh would come at 8.50 per cent and loans above Rs 5 lakh to Rs 20 lakh would be at 9.25 per cent from Tuesday, down from 10-10.5 per cent.
The interest rates would be fixed for five years, after which the borrower can switch to a floating rate or a fixed rate without paying any charge, SBI Chairman OP Bhatt told a news conference jointly with Bank of India chairman TS Narayanasami, who also heads the Indian Banks’ Association.
Narayanasami said the rates may be further lowered if market rates fall below the special rates.
The special rates with no processing charges will apply only for new loans sanctioned on or before June 30, 2009. Public sector banks would also provide free insurance cover matching the loan outstanding to the borrowers to help free inheritors from repayment liabilities in the case of demise of borrowers.