Chidambaram for home loan rate cut, says RBI, banks need to take a call

Written by Economy Bureau | New Delhi, Mar 6 | Updated: Mar 7 2008, 04:30am hrs
Reiterating that there is a need to reduce interest rates on home loans of up to Rs 20 lakh, finance minister P Chidambaram on Thursday said the banks and the Reserve Bank of India would have to take a final call on the issue.

Speaking at a post-Budget seminar, organised by industry body Assocham, he said, I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow (housing loans) up to Rs 20 lakh, must be lowered.

He added that housing loan borrowers of less than Rs 20 lakh should be incentivised by lowering interest rates. I made a number of efforts to impress upon bankers in this regard, he pointed out.

As much as 80% of all housing loans fall in the category of below Rs 20 lakh, the finance minister said, adding that these loans have less-risk weightage than those above Rs 20 lakhs and, therefore, bankers have incentives to lend to these borrowers at lower interest rates.

Meanwhile, he said investors should come to the stock market for long term. While defending his Budget proposal to increase short-term capital gains tax rate to 15%, Chidambaram said it would encourage the investors to hold on to their investments for a longer period in the markets, which are currently volatile.

He said by raising the short-term capital gains tax, he was also equating the levy to dividend distribution tax (DDT) of 15%. On the industrys demand that double taxation in DDT should be avoided at all levels of companies, Chidambaram said tax laws should not be bent to encourage shell companies, that are created just for tax shelters.

On the RBIs stand on inflation, he said that the banks position to strike a balance between low inflation and high growth is unenviable. It has to be left the central bank to decide on the level of interest rates which could contain inflation and promote growth.