Following the industry leader SBI, Central Bank of India has also frozen the interest rate at 8% for the new home loan borrowers for the period of one year.
This scheme by the bank will be valid until March 31st. Central Bank executive director Ramnath Pradeep said, "The scheme, which will be applicable for all loans taken till March 31, is aimed at pushing credit flow to the housing sector."
As per the scheme there is no upper limit set in the loan amount, said the bank. Further on the completion of one year, interest rate will be reset to the respective schemes.
The bank expects an incremental growth of Rs 1,000 crore over the next one year under this scheme.
At the same time, Central Bank has reduced the home loan rates by 50 basis points to 8% for the housing loans up to Rs 5 lakh under the special package. These rates have been effective from Wednesday, February 18th.
"The rate under this package will be fixed at eight percent for a period of five years and will be reset after that," Pradeep said, adding, "the borrower will have the option of continuing with the fixed rate or switching over to the floating rate."
Recently SBI has also announced a similar scheme where the interest rate for home loans has been fixed at 8% for one year. However the HDFC Chiarman, Deepak Parekh hit out at SBI's plan and called it a ‘gimmick'. He says that the bank is just trying to attract the existing customers in the housing finance market by this move.
The step by the Central Bank is expected to propel the other public sector lenders to take a similar move. Meanwhile, private sector banks are yet to bring down the home loan rates.
HDFC Bank however said that it would cut the home loan rates if their cost of funds decline. "If our cost of fund comes down, we will certainly reduce rates," said Parekh.