Now, home loan buyers have every reason to smile as banks can now provide home loans up to 90 per cent for properties that cost Rs 30 lakh or below. This came at a time when home loan portfolio of banks, especially public sector banks was under pressure due to high interest rates and other factors as well.
The Reserve Bank of India (RBI) through a circular on Thursday said that in the case of individual housing loans falling under the loan category of up to Rs30 lakh, the loan to Value (lTV) ratio is now up to 90 per cent. “For properties above Rs30 lakh and up to Rs75 lakh, the lTV is up to 80 per cent and those above Rs75 lakh, the ratio comes in at 75 per cent,” said the circular, adding that it has also modified the provisioning or risk-weights norms for home loans.
The RBI’s decision comes in the wake of all major banks reducing interest rate on home loans. However, a senior official of country’s largest lender State Bank of India said, “It is an welcome decision of the central bank to prep up the banks’ loan portfolio, especially home loans in retail loan segment. Now, the banks can encash it from their prospective customers to increase their credit offtake. I think it will help all big players including housing finance companies too.”
Earlier, the facility was available only in cases where the cost was up to Rs20 lakh. This will benefit those home seekers who plan to buy properties in the range of Rs20-30 lakh, according to the RBI circular.
When asked how much credit offtake is expected with this move, he added, “All banks need to take a cautious approach on this matter. All real estate companies need to revise their prices so that banks can get a leg-up to disburse the loan to home seekers. We hope 10-15 per cent rise of credit offtake in home loan segments in almost all banks.”
The decision is line with RBI’s statement on September 29, when it reduced its key interest rate by half a percentage point, that it was reviewing these norms and will release guidelines shortly. “As prices of real estate have gone up since the time they had introduced that 90 per cent lTV for Rs20 lakh loans. Now, it will adjust the lTV to realign with the existing prices and this should help banks and customers both,” said an Executive Director of a public sector bank.
The RBI’s move comes in the wake of a Government plan, called ‘Housing for All’, to build 20 million houses for the urban poor by 2022, which coincides with 75 years of independence. “With a view to improving ‘affordability of low-cost housing’ for economically weaker sections and low-income groups and giving a fillip to ‘Housing for All’, while being cognisant of prudential concerns, it is proposed to reduce the risk weights applicable to lower value but well collateralized individual housing loans,” the central bank had said in its monetary policy statement last month.
It has been observed that some lenders have been seeking relaxations from the central bank in light of a slowdown in the real estate sector. In August, SBI chief Arundhati Bhattacharya had pitched for the reintroduction of teaser loans which could help improve demand for homes at a time when the real estate sector is struggling with high inventories. Generally, teaser home loans are offered at a fixed low-rate of interest in the initial years and are subsequently adjusted to a higher floating rate for the rest of their tenure. “I am told that real estate stock is at a two-year high and I was thinking if it is possible something of the teaser loan kind could be allowed given the fact that this is one of the portfolios where non-performing assets (NPAs) are the lowest,” Bhattacharya had said.