The IBA (Indian bank Association), has announced a housing sector stimulus package to give a boost to the small ticket housing sector by making such loans available at cheaper rates and under simpler terms.

With a focus to stimulate demand in housing sector, the IBA said that the rates for home loans upto Rs 5 lacs will not be more than 8.5%, while those between Rs 5 lakh and Rs 20 lakh (Rs 500,000 and Rs 2 million) would be offered at 9.25 per cent.

It also indicated that the home loan rate under package can fall more if the interest rates fall. The banks will bear insurance cost on Rs 5 lac home package  and all loans under Rs 5 lacs will have free insurance cover. No process or prepayment fees required upto the loans of Rs 5 lacs. Addressing the press conference, O.P. Bhatt, Chairman SBI Bank also said that the banks will cut loans to micro industries by 100 bps. The new home loan package will be valid till June 30, 2009. “The whole exercise is to make interest affordable for housing and SME sectors”, added Bhatt.

This boost to Rs 5-20 lacs home finance segment comes as a good news to real estate developers who have been reeling under pressure due to softening of demand, amongst other reasons. However, it is not yet clear if the existing home loan borrowers will benefit from the special home loan schemes unveiled by state-owned banks today.

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