PSU banks in a fix over home loan rate cut | india | Hindustan Times
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PSU banks in a fix over home loan rate cut

The going may get tough for the state-run banks with the government remaining silent on providing interest subsidy even as it stressed that they should reduce interest rates to 7.5 per cent to 8.5 per cent on housing loans of up to Rs 20 lakh.

india Updated: Dec 12, 2008 20:20 IST

The going may get tough for the state-run banks with the government remaining silent on providing interest subsidy even as it stressed that they should reduce interest rates to 7.5 per cent to 8.5 per cent on housing loans of up to Rs 20 lakh.

Bankers said that the “move is neither feasible not desirable.” A PSU bank CEO pointed out that the average cost of deposits is around 9.5 per cent at present. “The cost of deposit is much higher than lending rates and this is a recipe for disaster,” he said.

An interest subsidy of at least 2.5 per cent is required in a bid to offset the financial damage.

Banking sources, however, said that they may urge the government to provide interest subvention at a later stage. With this move, banks will have to expedite the exercise of reducing deposit rates.

“Banks may have to reduce deposit rates drastically to be in sync with such low lending rates,” a PSU bank official said.

A decision on bringing down deposit rates will be taken by the banks at the earliest, the official said, adding that the decision on the quantum will be based on the asset liability situation of the banks. The announcement on reduction of home loan rates is expected to come in the next few days.

The move to reduce interest rates for loan amounts up to Rs 20 lakh, though, is expected to provide the much required fillip to the real estate sector, it has left bankers are a worried lot.

In the last few weeks, the Reserve Bank of India has brought down key policy rates including the repo and the reverse repo rates.