State Bank of India (SBI) the country's largest public sector bank and one of the leading players in the loan market, has finally decided to take on the recent decline in the loan market. To attract more loan seekers SBI will reduce the interest rates on retail loans and most importantly the lucrative home loans by next week. The bank is planning to time their move by coinciding it with the start of the festive season and tapping the traditional upsurge in demand during the festive season

"We would look at reviewing lending rates when the festive season begins. A decision would be made in the next one week," said a senior SBI official.

Currently, SBI offers floating rate home loans at an interest rate of 10.75-11.25 per cent. For a fixed rate home loan for up to 10 years, the bank charges an interest rate of 12.75 per cent. The floating rate for auto loans is at 12-12.5 per cent.

The Maharashtra and Goa circles of SBI have already started to offer auto loans and home loans to new borrowers at 50 basis points lower than the effective rates. To lure in more customers the bank has waived half of the processing fees and is offering a higher LTV (loan to value ratio). Stating simply, it means that new borrowers can now get loans in excess of the regular 80-85 percent of the property costs.

The recent slump in demand for loans, more visible in case of home loans, has left the banks struggling to meet their sales targets. The slashing of interest rates might bring in the more borrowers towards the end of September and early October.