In a sign of how intense the competition in the consumer banking space has become, banks are planning to woo individuals with cheaper loans even as interest rates are on the rise. Consumer loans could be now available even at 150 basis points less than they were for the next few months as banks unveil special offers. So keen are banks to grow their loan books that some of them are going to the extent of relaxing the margin requirements for customers, allowing them to put out a smaller share of the cost of house.

According to RBI, the amount of retail loans given by banks between April 1, 2010 and May 22, 2010, rose 36.7% year-on-year to Rs 36, 277 crore, albeit on a low base of the corresponding period in 2009. Says KR Kamath, CMD, PNB, ?We are planning to lend at lower rates to small borrowers. Car loans will be cheaper by 50 basis points and will be available at 10%, while home loans for up to Rs 50 lakh will be available at a fixed rate of 8.5% across maturities whereas these are now being at 10-10.5%. Adds OP Bhatt, chairman, SBI, ?Our festive offers for retail borrowers will be out soon and we believe that if we bring down rates, consumers will borrow because typically people do buy cars or houses during the festive season.??

However, private sector banks don?t seem to be in a mood to bring down loan rates. Says Pralay Mondal, Head, Retail assets, HDFC bank, ?There is no question of reducing interest rates for consumers even if it is the festive season. In a rising interest rate regime, funds are not going to become cheaper.?

Says Kamlesh Rao, executive V-P? personal finance and mortgages, Kotak Mahindra Bank, ?There is no room for reducing rate of interest for our loans when the cost of funds is going up. However, we are planning to generate more business during the festival season through strengthening distribution networks through car dealers and builders with whom have tied up. ?

Says PC John, ED, Federal Bank, ?We are not planning to bring down interest rates either on auto or home loans. Those banks with surplus liquidity may want to cash in on the festival season.We have just enough liquidity.?

While some banks had increased deposit rates earlier in the year in February, a clutch of them increased rates by anywhere between 25 and 150bps, soon after the RBI announced its monetary policy in late July.