LICHF offers new home loan product

LIC Housing Finance (LICHF) today launched a loan product that eliminates the requirement of a charge on the house financed.

The housing finance company - a subsidiary of Life Insurance Corporation of India - will provide loans against the security of liquid financial assets such as fixed deposits with banks, national savings certificates and life insurance policies.

The company will target traders and small businessmen for selling the new housing product, New Griha Laxmi.

LICHF plans to disburse Rs 600 crore by end-December under the new scheme, S K Mitter, chief executive, LICHF, said. The HFC will extend up to 95 per cent of the value of pledged security under the scheme.

The interest rate will be 25 basis points higher than on the normal housing loan. Floating rates will be at eight per cent as against 7.25 per cent for normal housing loans.

The New Griha Laxmi offers the option to pay equated monthly instalment or only interest every month. If borrowers opt for the second option, the principal will be recovered by redeeming financial assets pledged. This loan products also does not require borrowers to provide guarantors.

On the recent move by National Housing Bank to increase risk weight on home loans by 25 basis points to 0.75 per cent, Mitter said the company is assessing the impact of the decision.

The capital adequacy of LICHF will fall below the regulatory requirement of minimum 12 per cent from 15 per cent following the increase in the risk weight. The HFC will raise additional capital funds from the market soon, Mitter said.

"We are keeping options open to raise additional capital. The company may issue fresh equity capital, raise debt or use a combination before March 2006," he said. Currently all capital is part of Tier-I capital consisting of net worth of about Rs 1,200 crore.

He said interest rates have hardened in the market and LICHF will certainly revise its home loan rates upwards, but a rate hike is likely towards the end of December 2005.