Some RBI relief for home loan customers

Central bank raises cap on LTV ratio to 90%.

Borrowers can now get 90 per cent of the value of their home as loans from banks. The Reserve Bank of India (RBI) on Thursday increased the cap on the loan-to-value (LTV) ratio to 90 per cent from the earlier 80 per cent.

The central bank said loans up to Rs 20 lakh would be treated as small-value ones. To prevent excess leveraging, it had earlier prescribed an 80 per cent cap in its second quarter review, irrespective of the loan size. These loans are considered priority-sector ones by banks.

RBI also made a change in the instructions for banks running teaser schemes. Teaser loans are those wherein comparatively lower rates are charged in the first few years and later reset to higher levels. Earlier, RBI asked banks to make a standard provision of 0.4 per cent a year for such loans. Recently, to discourage such loans, it asked banks to make a provision of two per cent of the outstanding portfolio for such loans.

It had, however, not specified the time period over which this was supposed to be done. On Thursday, it said this had to be done with immediate effect. However, it also gave some relief, by permitting banks running teaser schemes to revert to the provisioning of 0.4 per cent a year after the interest rate was reset at a higher level.

The move will mainly impact State Bank of India (SBI), as most other banks have already withdrawn teaser rate schemes. Senior SBI officials said the bank had made provisions, following the 0.4 per cent norm for such loans at the end of September.

“Now, banks will have to set aside a higher amount as provision, thus impacting the net profit in the third quarter,” they said. Its special home loan would end this month and the bank was still silent on its fate.

However, the shift to lower provisioning norms after one year would bring relief to banks from the second year onwards, as the amount blocked in higher provisions would get released when the loans were reset at higher rates.