New Delhi: State-owned banks are putting finishing touches to a package that will boost the housing sector by making home loans available at cheaper rates and under simpler terms.

Indian public-sector banks are said to be in agreement over cutting interest rates on home loans to about 8 per cent for loans of less than Rs20 lakh. Not only this, they have also agreed to lower rates for loans to small and medium enterprises.

Around 80 per cent of India's home loan borrowers have taken less than Rs20 lakh as loan. Floating interest rates stand at 11 per cent now.

The gvernment's recently announced fiscal stimulus package promised that public sector banks (PSBs) would soon announce a package for two categories of home loans– up to Rs5 lakh, and between Rs5 lakh and Rs20 lakh. The government is also considering an interest subvention for loans below Rs5 lakh (See: Bankers weigh rate cut for housing, small industry sectors)

Banking sources said banks may provide loans up to Rs5 lakh at around 8.5 per cent interest, and those between Rs5 lakh and 20 lakh will carry an interest rate of 9.25 per cent a year.

At present, interest rates on home loans of below Rs20 lakh, with tenure of upto 10 years, stands at 9.5 per cent to 10.5 per cent. Banking sources said the comfort level for banks is 8.5 per cent for home loans up to Rs5 lakh and 9.25 per cent for Rs5 lakh-20 lakh.

To facilitate banks to lend at these rates, sources said that RBI may relax risk weights for these categories of housing loans if the banks reduce the margin money from 25 per cent to 10 per cent. At present, the risk weight is 50 per cent for home loans up to Rs20 lakh.

Cheaper loans, a full waiver of processing charges and concessions on margin money requirements are also under consideration. Apart from lower interest rates, the government will ensure easy access to credit for small and medium enterprises (SMEs). Other offerings may include making credit more accessible and cheaper for small and medium enterprises.