Housing Finance A Cause For Worry

RBI ANNUAL REPORT FOR 2002-03

The Reserve Bank of India (RBI) is actively considering prescribing a benchmark rate for home loans.

This is because many banks are throwing caution to the wind and dropping lending rates on home loans below their prime lending rates (PLRs).

In the annual report 2003-04, the central bank expressed concern as banks have reduced lending rates to such an extent that they are almost lending without any margin over their cost of funds.

The RBI has cautioned banks to be on the alert against unbridled growth of housing finance. Banks should take precaution in the matter of interest rates, margin, reset period and documentation, warned the central bank.