Following speculation and protest from existing home loan customers, home minister P Chidambaram told the Lok Sabha yesterday that floating interest rates must come down. The loans for existing home loans will be reset as the PLR is reduced.

Public sector banks on Monday announced that home loans up to Rs5 lakh would be given at a maximum interest rate of 8.5 per cent, while those between Rs5 and Rs20 lakh would be offered at 9.25 per cent.

Besides, the banks would not charge any processing fees and pre-payment charges for loans up to Rs20 lakh, and would also provide free insurance cover.  While the lower rates were applicable to new loans, they did not bring relief to existing borrowers who have borne the brunt of rising rates.

The minister spoke on behalf of the prime minister who now holds the finance portfolio.

Chidambaram said that steps had been taken to address the liquidity crisis but banks remained risk averse while those seeking home loans were deterred by the 12-13 per cent rates being currently charged. "I am sure that banks will sincerely attempt to reset the floating rates," said the minister, who till recently held the finance portfolio.

Only state-run banks have so far cut home loan rates after the Reserve Bank slashed key lending rates by 250 basis points since October and lowered the mandatory cash requirement of banks. Many private banks have not even cut rates for even new borrowers.

Elaborating on the government's three-stage strategy to deal with the crisis, Chidambaram said the liquidity problem had been addressed in an adequate manner though more liquidity is required.

He said that liquidity should be transferred into credit; a task rendered difficult by the risk-aversion of banks. But, he was quick to point out that the banks had begun lending towards the end of November and the government was encouraging them to lend to productive sectors especially small and medium industries.