On its part, RBI has already assigned lower risk weight to home loans up to Rs 20 lakh, enabling banks to offer smaller loans at lower rates. But in practice, it is just the reverse. Interest rates on big-ticket home loans of over Rs 1 crore are around half a percentage point lower than rates offered for loans up to Rs 50 lakh. And those between Rs 50 lakh and Rs 1 crore cost 25 basis points less than loans up to Rs 50 lakh. Bankers attribute this mainly to the lower cost of servicing and overheads.

At present, around 80% of all housing loans fall in the category of below Rs 20 lakh, the FM said. These loans have less risk weight than those above Rs 20 lakh. Therefore, bankers have incentives to lend to these borrowers at lower interest.

In last 6 months, rates have dropped 1-2%
In the past six months, home loan rates have fallen by one to two percentage points to around 10% for new borrowers. Till 2005, banks offered home loans at around 7.5% but inflation forced RBI to follow a tight monetary policy which drove up rates. By March 2007, home loan rates had gone up to 12%.

With a rise in rates from 7.5% to 12%, equated monthly instalments (EMIs) on the same amount of loan went up by 45%, affecting affordability and demand for real estate.

In recent months, however, better liquidity has resulted in a one to two percentage point reduction. But RBI's cautious approach on interest rates due to inflationary pressure has meant that home loan rates continue to hover around 10%.