The largest lender of the country, State Bank of India has already moved towards rising of interest rates on home loans. One of the leading players in the housing finance market, SBI has raised home loan rates despite continuing with its teaser loan season.

The bank has extended the tenor of its special home loans till the end of April. Although the first year of these loans will attract interest of 8% as was prevalent earlier, the rates for the subsequent years have been increased by the bank. Rising cost of funds led the bank to take this step.

The bank had two home loan schemes till 31st March namely The Easy Home Loan (up to Rs 50 lakh) and Advantage Home Loan (above Rs 50 lakh). ‘‘From April 1, both the schemes have been merged and extended for a month,'' an SBI spokesperson said.

"The rates applicable for new loans sourced from April 1 till April 30 are 8% for the first year, 9% for the second and third years and floating rate at 1.75% below SBAR (SBI's equivalent of prime lending rate, or PLR) thereafter,'' he added.

This infers that the home loan rates for the second and third years have gone up by 50 basis points. Earlier the rate was 8.5% which is 9% now. Fourth year onwards, the current structure would attract interest at 10% per annum.

Stating the cause behind raising interest rates on home loans, the SBI spokesperson said that the step portrayed ‘‘the increased cost of funds from April 1 stemming from the new methodology for paying interest in savings bank accounts on daily balances.''

With the current economic picture prevailing in the nation with food inflation touching almost 20% and yields on benchmark 10 year Government securities hovering around 8%, bankers feel that the likelihood of a hike in interest rates is concurrent.