The State Bank of India (SBI) is likely to cut interest rates on education loans by up to one per cent from 20 feb 2012. Banks have started scaling down interest rates on education and home loans after repeated hikes over the last two years as the Reserve Bank of India (RBI) has eased its tight monetary policy.

According to sources, SBI decided to reduce interest rates on study loans by 0.25 per cent to one per cent across various maturities at a meeting of its asset, liability committee (Alco) during the weekend.

For a loan of Rs.4 lakh, interest rates are expected to be reduced by 0.25 per cent to 11.75 per cent while for loans in the Rs.4 to Rs.7.5 lakh range, interest rate is likely to be cut by one per cent to 12.50 per cent. For loans above Rs.7.5 lakh, the rate is likely to be lowered by 0.25 per cent to 12.25 per cent.

SBI is also offering a concession of 0.5 per cent on interest rates for loans given to female students.

SBI chairman Pratip Chaudhuri had last Monday that the bank may have an Alco meeting and will have education loan rate cut on top of the agenda.

Chaudhuri had, however, ruled out any possibility of a reduction in the base rate or home loan rates saying they are of longterm nature. SBI's base rate stands at 10 per cent as of now, which is the lowest in the country.

The education loan book of SBI constitutes under seven per cent of its Rs.1.75 lakh crore retail loan portfolio. In the December quarter, the bank saw its education loan books swelling by 14.17 per cent.

Meanwhile, two smaller public sector banks have announced a cut on interest rates on home loans by 0.25 per cent.

Central Bank of India brought down the interest by 0.25 per cent to boost credit demand. Accordingly, loans up to 25 years and under Rs.30 lakh will be available at a reduced interest rate of 10.75 % from bank.

The Pune-headquartered Bank of Maharashtra also announced a similar reduction in its housing loan under Rs.25 lakh up for a five-year tenor at their reduced base rate of 10.60 per cent.

Both the banks have also waived processing fees on home loans.