Amongst the private sector banks last week HDFC announced the cut in home loan rates, while ICICI, the leader among private banks in home loans, still have to decide on lending rate cuts. Earlier RBI had asked the PSU banks to reduce the rates and the moral suasion has worked. State-owned banks have begun bringing down lending rates even without a cut in benchmark rates by RBI.
Close on the heels of HDFC, on Tuesday Canara Bank and Allahabad Bank announced cuts in lending rates.
State-controlled Canara Bank and Allahabad Bank have slashed the lending rates by 0.25 percentage points and 0.5 to 0.75 percentage points respectively. Taking the signals from the Reserve Bank of India Governor YV Reddy in the credit policy on January 29, paving the way for other banks to follow, HDFC was the first bank to cut the rates.
Canara Bank, the third largest bank in the country, has cut home loan rates by 0.25 per cent almost across the board. Currently, the bank’s home loan below Rs 20 lakh for five years is priced at 10 per cent and a long-end loan for 25 years will cost 10.5 per cent per annum.
“The decision is in line with the expected softening of interest rates. However, a cut in rates of other loans will be considered later," Canara Bank chairman MBN Rao told Hindustan Times. Although the growth in the corporate sector is at a robust pace, but credit growth will remain within the Reserve Bank-targeted level of 24 per cent. However this step will encourage small industries and households to seek loans.
Allahabad Bank chairman AC Mahajan informed the cut in housing loans is 0.5-0.75 percentage points, education loans by 0.25-1.00 percentage points and while consumer durable rates by one percentage point following a fall in the incremental cost of funds.
Addressing the reporters at a conference ICICI Bank's chief executive officer KV Kamath said that the bank is keeping an eye on the interest rates trends, which usually go up during the last quarter, before taking a decision on a possible cut.
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A home loan may be refinanced for many reasons. Sometimes refinancing lowers the interest rate on the loan, often resulting in lower monthly mortgage payments on the home. Other times, home loans are refinanced to get extra money that can be used to pay off different outstanding debts.
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