Public sector banks seem to have paid heed to finance minister's P Chidambabram's exhortations earlier this month to reduce home loan rates. A day after UCO Bank announced a cut in its home loan rate, another public sector lender, Allahabad Bank, has reduced home loan rate by 25 basis points or 0.25 per cent on both fixed and floating-rate loans, subject to a ceiling of Rs20 lakh.
A week after presenting the Budget 2009 proposals, Chidambaram, had said, ''I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow up to Rs20 lakh, must be lowered'', stating that a case for rate moderation exists considering the lower risks associated with lending to this segment (See: Chidambaram leaves rate decision to lenders and RBI; says loan waiver wont hurt banks) . Around 80 per cent of home loans taken in India fall in this sub-20-lakh category.
In a regulatory filing, Allahabad Bank said, '' The reduction in interest rate has been given to customers as the bank has been able to reduce the cost of incremental deposits, the general market scenario and to boost the demand in housing loan sector, particularly among small and medium category borrowers''.
The rate cut is effective from 1 April for all fresh sanctions. For existing customers, some relief may also be in sight with the bank expressing its intention to its board for further reduction in prime lending rate (PLR) to make all PLR-linked loans more comfortable for its borrowers. As for new loans, with the cut in rates, the minimum interest on home loans for a five-year period will be 9.5 per cent and the maximum would be 10.5 per cent for a period of 15 to 25 years.
This news wasn't enough to revive the share price on a day when bank stocks were slaughtered at the markets. Shares of Allahabad Bank closed 5.28 per cent down to Rs.76.25 on the Bombay Stock Exchange today.