FM for lower rates on home loans of up to Rs 20 lakh

Making a strong case for a cut in interest rates on home loans of up to Rs 20 lakh, finance minister P Chidambaram today said he would continue to talk to bankers as these accounts, which form a lion’s share of total borrowing for housing, carry less risk weightage. The finance minister, however, in the same breath added that the ball is in the court of banks and Reserve Bank. “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,” Chidambaram said in his post-budget interaction with industry chamber Assocham here.

Following the Reserve Bank’s tight monetary policy initiatives, interest rates on housing loans have shot up to the range 10-12 per cent, bringing the demand sharply down. If the rate of inflation is high, RBI tightens monetary policy, leading to higher interest rates. But at its last monetary review in January, RBI kept all key rates intact. But even then many banks, including market leader SBI, cut interest rates after RBI said their net interest margin is still high.

The finance minister said he agreed that housing loan borrowers of less than Rs 20 lakh should be incentivised by lowering interest rates. As much as 80 per cent of all housing loans fall in the category of below Rs 20 lakh, he said, adding that these loans have less risk weight than those above Rs 20 lakh. Therefore, bankers have incentives to lend to these borrowers at lower interest rates.

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“I shall certainly bear in mind that there is public demand for interest rates to be lowered for who borrow (housing loans) up to Rs 20 lakh,” Chidambaram said. At the same time he also defended the RBI stance. The RBI governor’s position to strike a balance between low inflation and high growth is unenviable, he said.

“He (RBI governor) can never please everyone. It is his judgement call what should be the interest rates in order to contain inflation and promote growth,” the finance minister said. Chidambaram said he recognised that from the government’s point of view it is important to promote growth without stoking inflation.