New Delhi, March 7: Public and private sector banks are divided over finance minister P. Chidambaram’s proposal to cut interest rates on home loans of up to Rs 20 lakh.

Some banks may fall in line with Chidambaram’s suggestion, but there are others who are not keen on making a back-to-back interest rate cut amid inflationary worries.

Following the finance minister’s request for a cut in February, some public sector banks such as the State Bank of India, Canara Bank and the Bank of Baroda had reduced their general lending rates by 25 to 50 basis points.

“We have the lowest interest rate in the market at 9.25 per cent. So there is no scope of cutting it any further,” K. Raghuraman, executive director, Punjab National Bank, told The Telegraph.

However, Calcutta-based Uco Bank said it might slash housing loan rates by 50 basis points within March 15. The bank currently offers home loans at interest rates of between 9.5 per cent and 12 per cent.

“While government-run banks may resist a second round of rate cut so close to one made last month, most banks still have the margin to offer lower interest rates and may do so before the beginning of the next financial year,” said a banking expert.

According to banking analyst U.S. Bhargava, “Private banks have the margin to reduce interest rates but not the compulsion.”

A case in point is Housing Development Finance Corporation, whose joint managing director Renu Sud Karnad said this was not an appropriate time to reduce rates. She said the market situation became tight in March because of company tax payments.

However, the largest private sector bank, ICICI Bank, has said that there could be a softening of rates in the first quarter of the next fiscal.

Banks had raised overall lending rates by up to 400 basis points in over a year till May 2007, following increases in reserve requirements by the central bank.

The hikes in lending rates led to a sharp fall in loan growth for the purchase of homes, cars, two-wheelers and commercial vehicles.

Year-on-year growth in home loans towards the end of November 2007 had dropped to 15 per cent from 33 per cent a year ago.

Yesterday, addressing an Assocham meeting on the budget, Chidambaram said, “I made a number of efforts to impress upon bankers in this regard (a cut in home loan rate). It is a constant effort that I will have to make. Bankers will have to take a call, the RBI will have to take a call.”