Mumbai, December 15
To boost sagging home sales and provide relief to beleaguered small industries, public sector banks (PSBs) today announced a package comprising interest rate cuts and relaxed repayment norms designed to make borrowing attractive for these segments.

Home loans up to Rs 5 lakh will carry an interest rate of 8.5 per cent per year while loans between Rs 5 lakh to Rs 20 lakh will carry an interest of 9.25 per cent.

Announcing this, O.P. Bhatt, chairman, State Bank of India, said the rates would be effective till June 30, 2009. He added that banks would expect borrowers to put up a margin of 10 per cent on home loans up to Rs 5 lakh and a 15 per cent margin on loans up to Rs 20 lakh with a tenure of five years. The banks have also done away with processing fees and pre-payment charges on loans up to Rs 20 lakh. Borrowers would also be given free insurance cover as an added sop.

The measure, he added, is likely to result in disbursal of Rs 20,000 crore to home loan buyers till the middle of next year.

Bhatt also indicated at the possibility of home loan rates declining further before June 30 next year if interest rates on the whole come down.

However, the new rates are allowed only for new home loans and not for existing borrowers, Bhatt said.

“The government and Reserve Bank have taken several measures to support the economy in the backdrop of the current downturn and today's package will support these,” IBA’s chairman and Bank of India chief T.S. Narayanasami said.

More than 80 per cent of home loan applications emanate from below the Rs 20-lakh segment for public sector banks.

The new package is not expected to impact the public sector banks much. “This (the package) may impact us (public sector banks) by only 2-3 basis points,” Bhatt said.

State-owned banks have also offered a helping hand to micro and small industries by lowering their lending rates for loans up to Rs 10 crore.

Loans for micro industries will stand reduced by 1 per cent with immediate effect, while rates on loans for small and medium enterprises will be reduced by 0.5 per cent, bankers said.

To improve credit flow to the micro and small and medium enterprises segment, PSBs have also decided to grant need-based ad hoc working capital loans up to 20 per cent of the existing fund-based limits in respect of units having an overall fund-based credit facility up to Rs 10 crore.

These loans can be repaid in one year with a provision of a moratorium of six months, during which only interest would have to be serviced, bankers said.

Besides, in order to support export-oriented sectors, “banks will be pro-active and forthcoming in sanctioning adequate increases in working capital limits and will relax the cash margins on letters of credit/guarantee based on needs”, they said, adding that “receivables up to six months will be reckoned for book debt financing”.

The moratorium period in respect of micro and SME loans where project implementation has been delayed because of the current economic downturn could be extended on a case-to-case basis.

Banks will also help those units unable to repay their loan obligations on time by “rescheduling or re-phasing” their loans within the overall loans policy of the respective banks.