Mumbai: Bank of Baroda has slashed the interest rate on housing loans up to 50 basis points for new borrowers hoping that it would create some demand.

The bank has hardly done any business in the first five months of the recent year. A downfall in loans demand has made bankers troubled as the impact of unresponsive interest income on year-end profits is staring at them.

A senior Bank of Baroda official stated, “The bank has to survive in a market which is highly competitive as the home loan demand is elastic. After a series of hikes in 2006-07, the home loan demand has shown moderation. The rate cut may help to get better response.”

BoB has brought down interest rates on home loans by up to 50 basis points to 10-11.50 per cent that would be applicable to all new housing loans approved on or after September 1, 2007.

The country’s biggest lender, State Bank of India (SBI), too is considering alternatives for actuating loans demand, but an evaluation of lending rates is anticipated some time next month, when the festival season starts.

“Banks will have to look at reducing lending rates (for new borrowers) if credit does not pick up till the end of August. We are already five months into the year and advances are more or less flat, while banks have mobilised huge deposits,” a senior SBI functionary said.

Now, the altered floating rates for loans up to Rs 20 lakh range between 10 to 11 per cent for tenure of 5 to 25 years. For loans above Rs 20 lakh, the interest rates vary from 10.25 per cent to 11.5 per cent.

In case of fixed rate option, the altered interest rates on loans up to Rs 20 lakh range from 11.25 per cent to 12.5 per cent for periods from five to 15 years. For loans of over Rs 20 lakh, the rates are between 11.5 and 12.75 per cent, the bank said.