Home loan rates to go up on RBI's move: Crisil | delhi | Hindustan Times
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Home loan rates to go up on RBI's move: Crisil

delhi Updated: Nov 03, 2010 20:32 IST
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Home loan are set to get costlier and there could be some moderation in loan demand, with the RBI asking banks to keep more money aside for offering teaser home loans, research firm Crisil said on Wednesday.

In view of the higher risks with home loans, the RBI in its second quarter policy review on Tuesday had asked banks "to increase the standard asset provisioning by commercial banks for all such loans to 2 per cent." Currently, provisioning is 0.4 per cent.

"Crisil expects these measures, coupled with the increase of 25 basis points in benchmark rates by RBI, to translate into a firming up of home loan rates and thereby, a moderation in demand for, and disbursement of, loans in the near future," the rating agency said in a statement.

In another important move to check excessive leveraging, the RBI also directed banks that home loans should not exceed 80 per cent of the value of the property in order to secure the lender's assets in case of default.

"The significant increase in the standard asset provisioning for these loans is now expected to discourage banks from extending further teaser-rate loans and lead to a rise in home loan interest rates," Crisil said.

The RBI move to tighten noose on housing loans comes in addition to an increase in short-term lending and borrowing rates (repo and reverse rates) for banks by 25 basis points.

"The new provisions will persuade the borrower to bring in more equity, thereby reducing the risk of default in case of any sharp correction in property prices.

"Furthermore, the rise in interest rates on large-ticket loans is expected to be higher, given the increased risk weight in that segment, which could moderate the demand for such loans," Crisil Ratings Director Pawan Agrawal said.