Mumbai: The Reserve Bank has directed commercial banks to provide relief to those seeking home loans of up to Rs20 lakh, paving the way for reduction of interest rate on such borrowings by as much as 0.5%.
The central bank expects the banks to judiciously relax the provisioning norms, while disbursing housing loans of up to Rs20 lakh, RBI Governor Y V Reddy told reporters after releasing the annual credit policy for 2007-08.
The new norms will result in softening of interest rate on housing loan by 25-50 basis points, Punjab National Bank Executive Director K Raghuraman said, adding: “We would pass on this benefit to the borrowers.”
PNB will work out the quantum of relief that would be passed on to the housing loan borrowers in the stipulated segment, he said.
RBI in its annual policy document has reduced the risk weight on residential housing loans to individuals for loans up to Rs20 lakh from 75% to 50% as a temporary measure which will be reviewed after one year.
Giving the rationale for the initiative, Reddy said: “Though housing loan affects many people but it does not impact the banks in the same way, so we have given these concessions.”
Reddy further said that borrowers who had taken the floating rate loan did not appreciate the risk involved in opting for such loans.
Reacting to the RBI proposal, Oriental Bank of Commerce Executive Director Allen C A Parera said there could be marginal reduction in the interest rate on the segment in the near term.
However, it is a temporary measure, he said, adding the central bank could also increase it if circumstances turn adverse.