RBI extends priority lending cut-off, increases lending rate
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.
BOOST FOR AFFORDABLE HOUSING
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.
A CAUSE OF CONCERN
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.