There may be some good news for all prospective home loan takers despite the recent increase in interest rates. The finance ministry is considering raising the tax concession ceiling for home loan borrowers. At present, interest up to Rs 1.5 lakh is tax exempt under Section 24 of the Income-Tax Act. This is expected to go up to Rs 2 lakh. Representatives of the Indian Banks’ Association (IBA) and chairmen of some leading public sector banks met Mr P Chidambaram and requested him to consider this proposal. The series of rate hikes by the Reserve Bank of India (RBI) and increase in the cash reserve ratio (CRR) by 100 basis points in three months left most banks with no choice but to hike the benchmark prime lending rate. Since all other rates are linked to the prime rate, future home loan rates also went up. The FM had requested public sector banks not to increase home loan rates, but they went ahead and hiked prime rates by 50-75 basis points anyway, after the central bank hiked the CRR last week. The growth in home loans has already witnessed a slowdown this year. From 35-40pct in 2005-06, growth has dipped to 30pct this financial year. Bankers said the demand for home loans has declined, particularly in second-rung cities like Chandigarh, Jaipur and Pune, which had witnessed a huge boom in construction. Demand has also slowed for home loans of less than Rs 20 lakh. Analysts said so far there had been little impact of the interest rate hike in metros. But with double-digit interest rates, demand was likely to dip in metros next fiscal.
The Financial Express New Delhi Edition February 24 2007
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