Mumbai: Two major public sector lenders - Canara Bank and Allahabad Bank - have announced cuts in retail lending rates despite the tight money policy followed by the Reserve Bank of India.

In its credit policy review, announced on January 29, The RBI held interest rates unchanged. The central bank, however, said it was ready to act in an emergency in the near future.

Canara Bank, the country's third largest public sector lender, has reduced the rate of interest on existing as well as new housing loans by 25 basis points with effect from February 7.

All borrowers who have opted for home loan under the floating rate will get the benefit of interest rate reduction, Canara bank said in a press release.

The reduction in interest rates is valid for loans of all tenors up to 25 years, irrespective of the amount of loan, Canara Bank said in the release.

The revised rates for loans up to Rs20 lakh will be 10 per cent for five year tenor, 10.25 per cent for 10 year tenor and 10.50 per cent for tenor above 10 to 25 years. For loans above Rs20 lakh the rates would be 10.25 per cent, 10.50 per cent and 10.75 per cent, respectively, the release said.

The processing charges on home loans have also been reduced by 50 per cent until March 3, 2008.

Canara Bank had recently extended the maximum tenor of loans from 20 to 25 years and had given the option of repaying the loan in step-up EMIs.

Allahabad Bank has reduced interest rates on retail lending by 50 to 100 basis points following the reduction in its rates on incremental deposits.

The rates on deposits having a tenure of 2-10 years have been reduced by 25 basis points while rates for deposits of 61-180 days have been raised by 75-100 basis points, the bank said in a statement.

Meanwhile, ICICI Bank, the country's largest private sector lender, said it was keeping its cards close to the chest and assessing the demand-supply position for credit.

"Let's wait see what happens. This is the last quarter of the year where rates normally tend to increase. It would be unwise to say how rates will move in the next six weeks. We have also to see the demand-supply gap," chairman K V Kamath, said.

"There was a slow-down in segments like automobile. There was an impact in the mortgage business also, due to high cost of property prices," Kamath said, adding, "there was no serious impact across the board."

HDFC, the country's largest mortgage lender, had already cut home loan rates. HDFC cut its retail prime lending rate by 25 basis points to 13.75 per cent from February 3.

While all existing borrowers will see a 25 basis points reduction in their floating interest rates, new customers will continue to pay 10.25 per cent.

Since January 1, 2008, the company was giving new mortgage loans at 10.25 per cent, 375 basis points below the RPLR.

Since June 2007, the housing finance company has been offering fresh home loans at 300-350 basis points lower than the RPLR, which was at 14 per cent.