The special 8% home loan scheme introduced by the State Bank of India (SBI) is likely to extend until September 2009.

The scheme under which the interest rates are frozen for one year was earlier applicable for loans sanctioned until April end. "The proposal is to extend the home loan scheme up to September to benefit those who felt the April deadline was insufficient for availing of the scheme," said officials familiar with the development.

"The proposal has been forwarded to the chairman's office and approvals for the extension will be made public shortly. The deposit level at the bank is robust and SBI can afford to offer the loans at lower interest for an extended duration," added the officials.

The scheme has caused an enormous competition in the market and thereby prompted banks and housing finance companies to announce similar schemes. In fact HDFC's Chairman, Deepak Parekh termed the reduction in interest rates a ‘gimmick'.

At the same time, SBI is also expected to increase the last date for schemes including auto loans and warehouse-based receipts loans from May to September. Under the auto loan scheme, the bank is offering 10% interest rate for one year where as the warehouse-based receipt loans are offered at 8%.

Industry analysts say that the bank is extending the deadlines as a result of the lower-than-expected response from the borrowers.

The demand has been low because borrowers are still waiting for property prices to fall and further the home loan scheme by Canara Bank has also been one of the reasons for SBI to extend the deadline.

Canara Bank will offer a fixed rate of 8.25% on home loans until December 2009. Under this scheme, the bank will provide home loans at a fixed rate for the first five years and thereby charge a floating rate, which will be 200 basis points below the benchmark prime lending rate (BPLR) prevailing during that time.