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Interest rates on home loans up to Rs 20 lakh may go down

Finance Minister P Chidambaram says the RBI and the government would have to strike a balance between maintaining low inflation and sustaining high growth reports Gaurav Choudhury.
Hindustan Times | By Gaurav Choudhury, New Delhi
UPDATED ON MAR 07, 2008 01:11 AM IST

Finance Minister P Chidambaram said on Thursday that there was a case for lower interest rates on home loans below Rs 20 lakh, but said it was for the banks and the Reserve Bank of India (RBI) to decide on the matter.

“I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow (housing loans) up to Rs 20 lakh, must be lowered,” Chidambaram said during a post-budget interaction with members of industry chamber Assocham.

About 80 per cent of all housing loans are below Rs 20 lakh and carry a lower risk-weightage and bankers could lend to these category of borrowers a lower interest rates.

“I made a number of efforts to impress upon bankers in this regard. It is a constant effort that I will have to make. Bankers will have to take a call, RBI will have to take a call,” he said.

He said the RBI and the government would have to strike a balance between maintaining low inflation and sustaining high growth. Inflation measured by the wholesale price index climbed to 4.89 per cent in the week ended February 16, up from the previous week’s 4.35 per cent gain.

The pre-budget Economic Survey said that fiscal and currency administrators would have to keep a strong vigil rising foreign capital inflows and high commodity prices as policy makers grapple with options to manage inflation in a period of global economic uncertainty.

With a series of interest rates hikes in quick succession the RBI has quite aggressively tightened the monetary screws. While the government has cut import duty on several items including cement and edible oils, the central bank has adopted a policy of monetary tightening hiking the cash reserve ratio (CRR) and the repo-rate to contain the price line.

“He (the RBI governor) can never please everyone. It is his judgement call what should the interest rates be in order to contain inflation and promote growth,” the Finance Minister said.

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