Leading public sector banks like State bank of India (SBI) and Punjab National Bank (PNB) are planning to withdraw special schemes that carry interest rates as low as 8 percent.

The banks are planning to increase the rates by January in order to align them with the reserve bank's key rates. The quarterly policy review of RBI indicated that it might alter the rates after the end of current calendar year. The low-interest schemes offered by the public banks have resulted in lowest cost of home loans in five years.

PNB's Chairman and managing Director, KR Kamath said that while special offers would be withdrawn by the end of December, most banks were planning to extend the festive offers like zero processing fee.

At present, various banks are charging very low rates for the first few years. For instance, Development Credit Bank is offering 7.95 percent rate for the first year on their home loans. SBI, Canara and Dena bank are offering 8 percent for the first few years. After the offer period, these loans would be converted into floating rate homes that is the prevailing market rates would be applicable.

Syndicate Bank, a leading public sector bank, lowered its housing and auto loan rates in October for a limited period up to march 2010. Currently, the bank is providing home loans at 8.25 percent interest rate for the first two years, 8.75 for 3-5 years on loans worth Rs 30 lakh and 9.25 percent for first two years, 9.75 percent for 3-5 years for loans above 30 lakh.

Some public sector banks have already informed the finance Ministry that as RBI was planning to exit its accommodative monetary policy, they would not be able to continue with the present soft interest rate regime. The government, however, wanted the banks to maintain low rates till the time economic recovery became more visible.

In the policy review, RBI hiked its projection for inflation from 5 % to 6.5 % at the end of the current financial year. According to several forecasts there will be an increase of 50-100 basis points in the key policy rates within the next six months.