Bangalore: With the inflation in the negative territory and the liquidity crunch alleviating, banks are slashing the home loan interest rates. Taking the lead, ICICI Bank has reduced its home loan rates from 13 percent to 11.5 percent. The rate cut will be applicable on home loans of less than Rs 20 lakh.

HDFC Bank has announced that it is planning to reduce its interest rates post-budget and it also plans to cut the deposit rates by 25 bps (basis points). It was early in the year that HDFC had reduced its lending rates to offer home loans up to Rs 30 lakh at a rate of 9.75 percent, while loans above Rs 30 lakh were set to be extended at 10.75 percent to the new borrowers.

Dewan Housing Finance Corporation (DHFL), which provides home loans to the lower and middle class categories, plans to slash the interest rates by 25-50 bps in the near-term. DHFL also expects the interest rates to remain lower for some more time, because of the relief in liquidity.

The decision by the banks comes on the heels of the rate cuts announced by the Reserve Bank of India (RBI). The Repo rate, at which the RBI lends to banks, was reduced by 100 bps to 6.5 percent. The Reverse Repo rate, at which banks deposit their money with the RBI, was also cut by 100 bps to 5 percent. The government is also pressurizing RBI to lower interest rate further to ensure credit flow for all productive economic activity.

Earlier this month, the Union Finance Minister, Pranab Mukherjee in a meeting with the top executives of public sector banks (PSBs) urged the bankers to cut the lending rates further. State-run Union Bank of India has indicated a reduction in the lending rates by July, when it expects the related cost of funds to lower. The current benchmark prime lending rate of the bank is 12 percent.