RBI ex­tends pri­or­ity lend­ing cut-off, in­creases lend­ing rate

Hindustan Times (Chandigarh) - Estates - - NEWS - HT Es­tates Cor­re­spon­dent ht­es­tates@hin­dus­tan­times.com

The home loan rates are set to in­crease af­ter the Re­serve Bank of In­dia (RBI), for the first time in over four years, raised repo rate by 25 ba­sis points to 6.25%.

This is the rate at which the cen­tral bank lends to banks. This will even­tu­ally push up the in­ter­est rates at which home loans are made avail­able to buy­ers by the fi­nan­cial in­sti­tu­tions.

In­fla­tion­ary trends in the coun­try on the back of rise in the in­ter­na­tional crude oil prices has im­pacted the RBI de­ci­sion. In the sec­ond bi-monthly mon­e­tary pol­icy for the cur­rent fis­cal, the RBI re­vised up­wards the re­tail in­fla­tion range to 4.8-4.9% in the first half of 2018-19, and 4.7% in the sec­ond half.


The RBI raised the loan lim­its un­der pri­or­ity sec­tor lend­ing (PSL).

The cen­tral bank re­vised the hous­ing loan lim­its for PSL el­i­gi­bil­ity from ₹28 lakh to ₹35 lakh in metropoli­tan cen­tres and from ₹20 lakh to ₹25 lakh in other cen­tres.

The gov­ern­ment has de­cided to use sur­plus land of sick pub­lic sec­tor units for con­struc­tion of such dwelling units, and from now on, home-buy­ers will be recog­nised as fi­nan­cial cred­i­tors, thus giv­ing them a greater say in in­sol­vency of de­fault­ing builders.


RBI ob­served, “Af­ter a care­ful anal­y­sis of the hous­ing loans data, it has been ob­served that the level of non-per­form­ing as­sets (NPAs) for the ticket size of up to ₹2 lakh has been high and is ris­ing briskly. Banks need to strengthen their screen­ing and fol­low up in re­spect of lend­ing to low-ticket af­ford­able loan seg­ment.”

It is closely mon­i­tor­ing this sec­tor. “We will con­sider ap­pro- pri­ate pol­icy re­sponse such as a tight­en­ing of the loan to value (LTV) ra­tios and or an in­crease in the risk weights, should the need arise,” said RBI.


Rakesh Makkar, chief ex­ec­u­tive of­fi­cer, Gri­hashakti- Fuller­ton In­dia Home Fi­nance Com­pany, said, “The rate hike is in align­ment with mar­ket ex­pec­ta­tions and we ex­pect this to ar­rest in­fla­tion and keep the econ­omy on pro­jected growth tra­jec­tory. This will also ad­dress as­set res­o­lu­tion and thereby at­tract gen­uine home buy­ers.”

Shishir Bai­jal, chair­man and man­ag­ing di­rec­tor, Knight Frank In­dia, said, “The RBI’s stance of in­creas­ing the rate by 25bps is in line with our ex­pec­ta­tion con­sid­er­ing that the crude oil flared in­fla­tion level and the in­ter­est rates in the broader econ­omy have been march­ing higher for some time now. How­ever, this in­crease will de­lay the re­vival of the coun­try’s hous­ing mar­ket, which af­ter suf­fer­ing a pro­longed pe­riod of slump has just be­gun to show early signs of im­prove­ment on ac­count of uptick in af­ford­able hous­ing.”

Ramesh Nair, chief ex­ec­u­tive of­fi­cer and coun­try head, JLL In­dia, said, “The hike may dampen sen­ti­ments in the mar­ket, but in terms of real es­tate may have lit­tle or no im­pact. As al­most all home loans these days are on float­ing rates, the rise and fall in home loan rates does not im­pact the performance of res­i­den­tial real es­tate sec­tor much and tends to bal­ance each other out over long term. As buy­ing de­ci­sions are gen­er­ally not taken based on fluc­tu­a­tions in home loan rates, there will be lit­tle ef­fect on the real es­tate mar­ket. Though for some home buy­ers look­ing to­wards mak­ing a very low ticket size pur­chase de­ci­sion, there may be some ten­ta­tive­ness in the de­ci­sion mak­ing, over­all we will see min­i­mal im­pact on the end-user in the hous­ing sec­tor.”


Home­buy­ers will be recog­nised as fi­nan­cial cred­i­tors, thus giv­ing them a greater say in in­sol­vency of de­fault­ing builders.

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