The interest rates on small loans up to Rs 10,000 have, however, gone up by75 bps for fixed-rate loans and 25 bps for floating-rate loans. It has alsodoubled the ceiling of loan amount from Rs 50 lakh to Rs 1 crore. Therevised interest rates are effective from March 8.

The move is set to trigger a rate war in the housing-loan segment. Hudco hasalready cut its loan rates. ICICI and other major players are likely tofollow suit later this week.

The premier housing-finance company has reduced its retail prime lendingrate (RPLR) by 75 basis points to 12.75 per cent. Consequently, all floatingrate loans -- linked to RPLR -- will be priced at 12.75 per cent. In case offixed-rate home loans, the interest rate is fixed at 13.25 per cent, downfrom 13.50 per cent.

HDFC has merged four loan slabs (up to Rs 10,000, Rs 10,001-10 lakh, Rs10-15 lakh and Rs 15-50 lakh) into one uniform block and raised the upperlimit to Rs 1 crore. The relaxed rates of interest will apply for new loansand loans which are approved but not yet disbursed.

HDFC Chairman Deepak Parekh told The Financial Express: "Our cost of fundsover the last few months have come down from 12.5-13.5 per cent to 11.25 percent. The lifting of 2 per cent interest tax on loans is another benefit wewant to pass on to the customers."

For the first time, HDFC has extended its adjustable rate home loan fornon-resident Indians as well. The five-year floating-rate loans for NRIs isnow pegged at 11.25 per cent (RPLR minus 1.50 per cent) and six to ten yearloans are priced at 12.25 per cent (RPLR minus 50 bps).

It also raised the tenure of loans for NRI professionals from seven years to10 years.

"Since our margins have come down, we are passing this benefit to all ourcustomers. We have also lifted the repayment penalties that used to existfor adjustable rate home loan," Parekh said.

The maximum term for loan under the adjustable rate home loan facility hasbeen increased to 20 years and the prepayment penalties for this category ofloans have been lifted. HDFC has also introduced loans for education andother personal loans against mortgage of property under the home equityloans facility."