Good News for Home Loan Customers!
In good news for home loan customers, the Reserve Bank of India (RBI) is mulling a set of guidelines on the housing loan tenors. The central bank has expressed concerns about the long extension of home loan tenures.
On Thursday, RBI Deputy governor M Rajeshwar Rao said, as quoted by TOI, that the regulator is not considering defining an “unreasonable elongation” as the bank’s board will have to consider this.
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He further said, “It is for the bank board to decide having regard to the tenor and the repayment capacity of the individual borrowers.”
Rao said that the RBI authorities have already discussed the matter with the CEOs of the banks and conveyed their concerns and what actions they need to take.
“RBI will issue detailed guidelines shortly,” he added.
Besides hiding the stress in the system, elongating tenures also blunts the impact of the monetary policy as borrowers do not immediately feel the pressure of rising rates, especially when home loans are the biggest drivers of credit growth, said a retired central banker as cited by TOI.
A temporary extension of tenure, according to bankers, is not always a cause for worry as interest rates move in cycles, and should RBI cut rates in two years, the loan would revert to the original tenure.
“The average tenure of loans is still below 10 years because of repayments and refinancing,” said a banker adding the pre-payments take place because of an increase in income, windfall gains or sale of property.
In its bi-monthly ‘Statement on Developmental and Regulatory Policies’ released today, the RBI said, “The supervisory reviews undertaken by the Reserve Bank and the feedback and references from members of public have revealed several instances of unreasonable elongation of tenor of floating rate loans by lenders without proper consent and communication to the borrowers.”
“To address the issue, it is proposed to put in place a proper conduct framework to be implemented by all REs to address the issues faced by the borrowers,” the RBI said. (Times now news)
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