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Don't raise home loan rates: FM

August 14, 2008 12:15 IST

Finance Minister P Chidambaram on Wednesday asked public sector banks not to increase interest rates for home loans up to Rs 30 lakh (Rs 3 million) and lend more to consumers even as the Reserve Bank of India is trying to moderate credit growth to contain inflation.

"(Responding to the monetary policy) Public sector banks have increased their benchmark prime lending rates by 75-100 basis points. Banks have said almost unanimously that it will not impact existing home loans up to Rs 30 lakh, auto loans and education loans," Chidambaram told reporters after meeting the chiefs of public sector banks in New Delhi.

Sources said banks were advised by the minister not to raise interest rates for new home loans up to Rs 30 lakh also.

Chidambaram also impressed upon the banks' chiefs to increase disbursement of auto loans as well as personal loans by keeping interest rates affordable, sources added.

Taking cues from the North Block, most banks have already left interest rates untouched in the above categories. Some banks such as the Punjab National Bank, which have raised interest rates for existing borrowers in these categories, have assured that they will take a relook in these portfolios.

Taking a feedback from banks, Chidamabram said credit growth will be brisk this year. He said advances are likely to grow by over 20 per cent, while deposits more than 17 per cent.

RBI has pegged the credit growth at 20 per cent and the deposit growth at 17 per cent for the banking sector in 2008-09. "Deposits are growing at a satisfactory rate compared to last year. Advances are higher compared to the last year (in the first quarter)," Chidambaram said.

Most banks have conveyed that they were not witnessing any slowdown in credit demand. However, there was no growth in farm credit due to the relief scheme.

BS Reporter in New Delhi
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