Even as heavyweights on the home loan turf -- the likes of Housing Development Finance Corporation and State Bank of India -- choose not to react to the rate war triggered by ICICI Bank earlier this month, Canara Bank and Oriental Bank of Commerce were among the first to take the cue.

Both the banks have dropped their home loan by 50 to 75 basis points (one basis point is one hundredth of one per cent).

This makes their home loan offerings of up to five years maturity among the cheapest in the industry. Both banks have revised their floating interest rates for five year to 8.5 per cent, effective February 1.

ICICI Bank offers 8.75 per cent on loans up to five years. This rate advantage disappears on loan tenures of five years and above where the two public sector banks match the rates of the private sector bank.

On loans of over five years maturity, all the three banks are offering a rate of 9.25 per cent. For loans of over 10 years, the floating interest rate has been revised to 9.75 per cent.

This makes the loan offerings from the three banks the cheapest in the industry.

In a press release, Oriental Bank of Commerce states that its loans are cheaper than that of SBI and LIC Housing Finance by 50 to 75 basis points. And when compared to the industry leader, they are cheaper by 75 to 100 basis points.

In addition to the revision in interest rates, Oriental Bank of Commerce also pointed out that it has introduced free house insurance and personal accident cover for its borrowers.

Meanwhile, Canara Bank has also waived the entire processing charges till the end of the fiscal.

In response to the recent round of cuts, senior officials at LIC Housing Finance stated that until the industry leader HDFC drops its rates it would not react.

HDFC on the other hand, with a market share in excess of 30 per cent, has hinted of a rate cut as has SBI.

In a recent JM Morgan Stanley report on HDFC, analysts raised concerns on a possible rate war.

"With neither a slowdown visible in new loan growth nor a compression of margins, concerns about a rate war are overdone," it stated.

The housing finance major has recently pared its deposit rates. The report further pointed out that the housing loan major's spreads are expanding, as HDFC reported a rise of five basis points in its fixed rate spreads and an increase of 23 basis points in floating rate spreads.

The main reason for spread expansion follows funding rates having fallen faster than lending rates, despite a significant increase in the number of players entering the mortgage business.