The largest lender, State Bank of India (SBI) has announced yet another home loan scheme where the interest rates have been frozen at 8% for one year. The home loan package declared earlier offers fixed interest rates of 8.5% on loans up to Rs 5 lakh and and 9.25% on loans between Rs 5 lakh and Rs 20 lakh.

The new rate would be effective from February 2nd to April 30th, 2009 stated the bank in a press release. However the bank will levy the earlier contracted rates after the completion of one year of the loan period.

The existing customers who have taken loans under of the home loan package will also be benefited by this scheme. Moreover the old customers can also avail the new home loan scheme to the extent of 10% of their exposure subject to a cap of Rs5 lakh at 8%, said SBI in a release.

The decision by the leader is likely to propel other banks to take similar moves as it may compel borrower to switch to SBI. The chairman of Indian Banks' Association and CMD of Bank of India, TS Narayanasami said: "It is a good initiative to incentivize the home loan buyers. If the scheme is successful, all PSU banks may follow the suit with the ultimate objective of stimulating growth in the economy. Bank of India will take action on rates depending on the response received by this scheme."

However a senior official from SBI specified that the bank has not taken the move to attract the customer base of other banks but rather to boost growth in the economy. "Our focus is on stimulating growth in the economy. The scheme will benefit those who want to buy houses under construction. The buyer has to pay interest during the construction period, but does not get any tax benefits. Thus, 8% emerges as an attractive option," said the official.

Earlier SBI was charging home loans rates between 11.25% and 12.25% on a fixed basis and 9.75% on a floating basis. The floating home loan rates of most PSU banks range from 8.5% to 10.5%.

On the other hand private sector banks are charging home loans rates between 9.75% and 12.50%.

SBI has also introduced a new package for SME borrowers called SME Care. Under this scheme, an additional working capital facility of 20% of the fund based limits will be given to the customers. "The loan will be given to take care of inventories of raw materials, finished goods as also delayed payments from their buyers in the current downturn at an interest rate of 8 percent," stated the bank release.

The loan amount would be repayable in one year.