Although the apex regulator, RBI and Government of India has been announcing measures to help banks and housing finance companies (HFC) to reduce their cost of home loans but the private lenders and HFCs have not passed on the benefits to their customers.

Ever since April 2008, RBI has been giving concessions to lower the cost of home loans and public sector banks have even passed the benefits to their customers by offering home loans at cheaper rate but their private peers have not followed the same. Customers of private banks and HFCs are paying an additional150 basis points interest for the home loans up to Rs 30 lakh as compared to the customers of public sector banks.

An official from the RBI said, "We facilitate the benefit but decision for rate cut depends on banks and HFCs." Ideally, banks should pass on the benefit transferred by RBI to customers, but "we can't force banks to cut rates," he added.

Earlier in April this year, risk weightage for loans below Rs 30 lakh had been reduced by the RBI to 50% from 150%. Risk weightage is the capital required that banks need to keep aside with the central bank for loans that they extend. A reduction in the risk weightage was expected to pass on the concession to consumers but nothing of this sort was noticed in case of private banks and HFCs. On the other hand the benefits were transferred to the customers by banks that are under public sector.

However Punjab National Bank restricted the benefit to loans below Rs 20 lakh. Chief General Manager of PNB, RIS Sidhu said, "We treat priority sector (loans upto Rs 20 lakh) differently but as far as the risk weight is concerned it is an internal matter."

Conversely interest rates of private sector banks are not linked to the risk weight benefits availed by them and therefore the concessions are being retained by them. Kotak Mahindra's head of retail assets, Kamlesh Rao said, "We are present only in seven big cities where there are few properties at that price (below Rs 30 lakh) bracket. In big towns, the risk profile of a customer buying property below Rs 20 lakh is very high and that has to be taken into account."

A spokesperson in from HDFC says that this benefit is not "so significant" to induce banks for a rate cut.

However ICICI Home Finance has reduced its interest rates for home loans of less than Rs 20 lakh by 150 basis points. By taking such a step it has become the first HFC to pass on the benefits to consumers.