Banks Expected to Cut Rates on All Home Loans

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Dec. 19 – In order to boost the domestic real estate market, the government has asked banks to lower home loan rates for existing borrowers while paring rates for new borrowers. State run Indian banks have already cut home loan rates when the RBI slashed its key lending rate by 250 basis points earlier this year. Private Banks however are yet to cut home loan rates.

Real estate prices in large cities such as Mumbai and the National Capital Region around New Delhi have doubled in the past three years, reducing affordability. Demand for new homes further dropped last October when interest rates rose to a seven-year high as the central bank targeted accelerating inflation. Abating the sliding sector, the central bank subsequently cut home loan rates three times to 6.5 percent from 9 percent to cool the market.

“We have cut the credit reserve ratio… we have cut the statutory liquidity ratio… Now there is adequate liquidity in the system. But liquidity is not enough. It must translate to credit at right price. I admit that credit is not being given to borrowers now because banks have become risk averse after the global financial crisis. We are talking to bankers and have prevailed upon them,” Mr. Chidambaram told the Economic Times.

Hoping the rate cuts will boost liquidity, rejuvenating the market, Chidambaram who was Finance Minister until a month ago also assured investors of India's continued growth. Asia's third-biggest economy will expand by 7 percent this fiscal amid the global recession. “This year is difficult… But I am confident of about 7 percent growth in the current year. That will make us the second-fastest growing major economy in the world,” he continued in the Economic Times. India recorded a growth of 9 percent in 2007-08 and this year, RBI had projected a growth rate of 7.5-8 percent.