Friday, December 19, 2008

Politics of donations behind home loan plan

Finally, such a package will dent the profitability of public sector banks as the cost of funds is much more than the return on home loans. Banks are offering about 10.5% interest on one-year deposits. Taking into account the reserve requirements, the actual cost works out at least 11%. So, the banks will lose 2.5 percentage points on every small loan and 1.75 percentage points on loans up to Rs20 lakh. Besides, no processing fee and prepayment penalty will increase their losses.

Still, why is the government, the majority owner of public sector banks, forcing them to do the harakiri? After all, it earns dividend income if the banks make profits.

The official reason for this is bolstering the sagging economy. But had the general election not been round the corner, the government may not have goaded its banks to offer cheap home loans.
To read more, please, visit - Tamal Bandyopadhyay - livemint.com

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