RBI Modified Provisions on Home Loans
Reserve Bank of India (RBI) on 23 December 2010 modified rules that govern home loan.
The Reserve Bank of India (RBI) on 23 December 2010 modified certain home loan rules. RBI made it compulsory for all those applying for a housing loan from a bank to pay margin money of at least 20% of the value of the property. Initially the margin money varied between 10% and 15 %. RBI however made a concession for housing loans up to Rs 20 lakh where a buyer will be allowed to get a home loan by paying at least 10% of the value of the property.
Reserve Bank of India increased provisioning norms for all loans given at concessional rates for the first few years and has the option to go up after the initial few years. However it did mention that once the concession period ends and the borrower moves to the regular rate structure, provisioning for banks could come down.
In order to prevent excessive leveraging, the loan-to-value (LTV) ratio in respect of housing loans cannot exceed 80%. The RBI also increased the risk weightage of loans above Rs 75 lakh taken for buying a property. Increment in weightage is seen as a pre-emptive measure to rein in the possibility of an asset bubble and a sign that there could be overheating in the property market.
In view of the higher risk associated with housing loans, the standard asset provisioning on the outstanding amount were increased from 0.40% to 2%. The provisioning on these assets would revert to 0.40% after one year from the date on which the rates are reset at higher rates if the accounts remain standard.
As a result those who wish to apply for home loans must be prepared to shell out more to adhere to the rate structure.