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Bad news for home loan customers

Apr 27, 2007 04:36 PM IST Business Business

Mumbai: Borrowers of home loans up to Rs 20 lakh may not get any relief from paying higher EMI's.

The Reserve Bank in its credit policy on Tuesday announced that banks have to keep lesser capital aside for home loans below Rs 20 lakh. This means lower cost for a sub Rs 20-lakh home loan.

But bankers are in no hurry to pass on this reduction in costs to borrowers.

Sources in five large PSU banks told TV18 that they are unlikely to reduce interest rates for home loans below Rs 20 lakh.

They say that they were urged by Finance Minister P Chidambaram not to raise rates in January after the repo rate hike and so their loans are anyways cheaper by 1-1.5 per cent compared to private lenders.

Since they have taken a hit on their margins all these months, it may not be possible for them to raise rates now.

These PSU bankers also say that incase RBI steps in and hikes rates in the next few months, then they are likely not to pass this added cost to borrowers of home loan below Rs 20 lakh.

However, customers of ICICI Bank and HDFC may be lucky, the two biggies say they are doing a cost analysis and there may pass on some benefit to borrowers in the form of lower EMIs.

Twenty-five to 30 per cent of ICICI Bank's home loan clients fall in the below Rs 20 lakh rupees bracket while 70-80 per cent of HDFC's customers have an average loan size of Rs 10.5 lakh.