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Economic package: What's in it for you

December 9, 2008

The Indian government has unveiled a mega package to give a boost to a flagging economy and revive the crucial housing, export, automobile, textiles and small and medium enterprises sectors.

But how does this impact you? Read on to find outů

Govt may restrict home loan rates to 7-8%

The government is pushing state-owned banks to offer interest rates on housing loans up to Rs 20 lakh (Rs 2 million) at pre-2004 levels. This would mean consumers could get home loans at 7 to 8 per cent, 2 or 3 percentage points lower than the current market rate of 9.5 to 10.5 per cent.

Public sector bankers indicated that they have received signals to lower pricing of home loans up to Rs 20 lakh. Finance secretary Arun Ramanathan is likely to meet some public sector bank chiefs for an action plan. The contours of the package are likely to be ready early next week. The government on Sunday had said state-owned banks would announce a package for home loans up to Rs 20 lakh.

The government may also bear the interest risk -- the movement in the market rate against a fixed rate the lenders will charge borrowers of such loans.

Home loans up to Rs 500,000 may attract interest of around 7 per cent and those above Rs 500,000 and up to Rs 20 lakh around 8 per cent, sources said. With interest subvention, the actual interest realisation for banks may be around 10 per cent.

State-owned banks have reduced interest rates from as high as 11 to 12 per cent to 9.5 to 10 per cent. Deposit rates may fall further after RBI's recent rate cuts. The average cost of funds for banks is 6 per cent now.

Text: Prashant K Sahu

Also read: When CEOs take a salary cut!
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