While the interest on loans up to Rs 10,000 remains unchanged at 12.5 per cent, loans between Rs 10,000 and Rs 5 lakh will carry an interest rate of 13.50 per cent (down from 14 per cent up to Rs 2 lakh and 15 per cent up to Rs 5 lakh), above Rs 5 lakh and up to a ceiling of Rs 15 lakh 14.5 per cent (down from 15.5 per cent). The new rates will be effective from March 15.

According to HDFC, the interest rates have been reduced in response to the current year's Union budget which has proposed several measures to boost housing activities and the recent reduction in the bank rate by the Reserve Bank of India(RBI).

Taking a cue from HDFC, LIC Housing Finance as well as GIC Housing Finance are planning to cut their interest rates over the next few days. The housing subsidiary of LIC is working out the new interest rate structure which will be implemented with effect from March 22.

The State Bank board is expected to ratify a proposal for a rate cut in housing loans next week. The bank is planning to charge 12 per cent (the SBI advance rate) on loans up to Rs 2 lakh, 13 per cent (PLR plus one per cent) for loans between Rs 2 lakh and Rs 5 lakh and 14 per cent (PLR plus 2 per cent) for loans of Rs 5 Lakh and above.

Corporation Bank was the first to effect a rate cut in housing loans. The bank is now charging 12.5 per cent for loans between Rs 2 and Rs 5 lakh and 13.5 per cent for loans between Rs 5 lakh and Rs 10 lakh.

SBI is planning to introduce a fixed rate housing loans next week. According to sources, the fixed rate will be pegged at a slightly higher level than its floating rate housing loans. Hongkongand Shanghai Banking Corporation (HSBC) was the first to announce a combination of fixed and floating rate options for housing finance early this week. Under the HSBC scheme, all home loans will be offered at a uniform rate of interest irrespective of the amount borrowed (between Rs 2 lakh and Rs 1 crore).

Housing subsidiaries of public sector banks like Canfin Homes and the BoB Housing Finance are expected to revise the interest rates soon. "Our interest rates are dependent on HDFC. Whatever revised rates HDFC announces we would peg the interest rates at slightly lower rates up to a slab of Rs 5 lakh,'' said an official of BoB Housing Finance.

The rate war in the housing finance segment was kicked off by Hudco when it launched the retail housing finance window on March 8. It has pegged the interest rates for small loans (Rs 25,000) at 11.5 per cent. At the higher end, it is charging 15.5 per cent for loans between Rs 8 lakh and Rs 15 lakh.

Meanwhile, in order to neutralise the impact of the cut inlending rates, HDFC has also slashed the interest rates on its deposit products. The interest rate for a three-year deposit has been reduced to 10.50 per cent from 11.50 per cent while the five year term deposit rates have been reduced to 11 per cent from 11.50 per cent. The interest rates on trust deposits are 50 basis points higher than individual deposits. It has also pared the rates on other individual lending products including loans to non-resident Indians from 13.5 per cent to 13 per cent (for a five-year term) and home improvement loans and home extension loans.