Public sector lender, Andhra Bank has come up with a home loan scheme under which the bank will offer loans at 8 percent fixed interest rate for the initial year. Subsequently the rates will be reset to Floating Reference Rate (FRR), the retail benchmark rate until the full sum repayment.

The scheme is applicable for home loans from May 25 to September 30, 2009.

Under the scheme, there is no limit on the loan/borrowing amount and there are no processing charges for the loan.

With the demand for corporate loans dipping, Public Sector Banks (PSB) have considerably reduced the lending rates for the consumer loans in an attempt to expand their retail loan portfolios. SBI launched happy home loan scheme, in February this year offering home loans at a rate of 8 percent irrespective of the loan period. In a similar move, Canara Bank offered home loans with fixed rate of 8.25 per cent for the first year, 9.25 for the subsequent four years and at 10 percent for the remaining loan tenure. Later PNB came up with a home loan scheme, offering home loan up to Rs 50 lakh at 9 percent for the initial five years, subsequent to which reset clause would come into effect.

Sluggish credit expansion due to decline in corporate borrowings together with liquidity crunch have forced the banks to reduce the lending rates for consumer loans. Most banks are eyeing to expand their retail loan portfolios. Earlier, Union Bank launched a similar scheme offering home loans at 8 percent.