Mumbai: Diwali is more than two-months away, but the public sector banks are trying to instill the festive spirit and goad people to take loans.

Bank of Baroda has cut its home loan rate for a Rs 20 lakh loan from 10.75 per cent to 10.25 per cent for a tenure of 20-years.

Similarly a host of large PSU banks including the State Bank of India, Union Bank and Punjab National Bank are all looking at cutting home loan rates, by nearly half a percentage point.

Currently SBI charges a floating interest rate of 11.25 per cent for a 20-year loan, Union Bank charges 10.75 per cent and Punjab National Bank 9.5 per cent for a 20-year loan.

Though the festive season is the excuse, sources say the real reason for the cut is that bankers are worried about home loans growing at only 3 to 5 per cent, since April this year.

Home Loan sanctions have dropped dramatically this year as compared to 5 years of consistent 30 per cent growth in the home loan market. Bankers say the market has shrunk, thanks to high interest rates and higher property prices.

However, the largest lender of home loans, ICICI Bank is currently not looking at slashing rates. According to sources in the bank, their cost of funds is still high and hence there is, as of now, no scope to offer lower rates even temporarily for the festive season.

This festive season can be crucial for both bankers and developers. If the demand doesn't return, both sectors may be headed for a slowdown.