RBI change home loan caps

The Reserve Bank of India has raised the level of provisions banks have to set aside for loans above Rs 75 lakh to prevent excessive speculation in high-value housing segment. With this, new home loans exceeding Rs 75 lakh will carry a risk weight of 125 per cent for banks.

The RBI has also clarified on the provisions banks have to make in case of special home loan schemes.

For teaser loans, in the first 2-3 years, when interest rate is fixed, before moving to a floating rate, banks are mandated to set aside 2% of the loan amount for provisioning. However, banks can revert to 0.40% provisioning after one year from the date on which rates are reset at higher rates if the accounts remain standard.

The RBI has also raised the cap on loans to 90 per cent of the value of the property for all small housing loans or affordable housing up to Rs 20 lakh. This means customers buying property worth Rs 10 lakh can seek a loan of Rs 9 lakh. It has, however, retained the cap on loans at 80 per cent of the value of the property in all other cases.

?It has been observed that some banks are following the practice of sanctioning housing loans at teaser rates ? that is at comparatively lower rates of interest in the first few years, after which rates are reset at higher rates. This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective. It has been also observed that many banks at the time of initial loan appraisal, do not take into account the repaying capacity of the borrower at normal lending rates,? RBI said in a statement.

"Through these measures, RBI is trying to make home loans costlier. The RBI has a view that if loans are costlier, real estate prices will come down. However, that is not happening. There is a lot of demand from small and mid-segment homebuyers. Only high-end houses are witnessing sluggish demand," said a senior IDBI Bank official.

At present, only State Bank of India is offering teaser loans. This scheme is supposed to end by December 31, 2010. A senior SBI official said the bank had yet to take a call on extending the scheme. SBI home loan portfolio has grown rapidly after the launch of the scheme.

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