In two years there may be differential rates for home loans, depending upon the money you can bring to the table.
According to the new guidelines that will be effective from March 2009, if you can bring in Rs 6 lakh for a property worth Rs 24 lakhs and seek only Rs 18 lakh as loan you will get a lower interest rate as opposed to seeking Rs 20 lakh and bringing only Rs 4 lakh of your own money.
The new guidelines were issued on Friday, April 27. These are the final guidelines for banks operating in India to conform to the Basel II norms. The Basel II norms are international guidelines for banking decided as per the second Basel Accord.
While foreign banks have been asked to conform to the norms by March 2008, Indian banks have another year to fall in line. The guidelines lay down the various risk-weights for different kinds of loans that banks offer. In the section on housing loans, the norms lay down that the risk weight for loans below Rs 20 lakh will be 50 per cent and for higher loans it would be 75 per cent.
However, if the value of the loan is more than 75 per cent of the value of the asset — in this case the price of the house being bought — the risk-weight will be 100 per cent irrespective of whether the loan is below or above Rs 20 lakh.
Crisil’s head of corporate and government ratings Tarun Bhatia said, “Going forward, banks will provide some benefits to new loans where the loan value is 75 per cent or lower of the property value as they will be able to take on more of these loans than ones where the loan value is more than 75 per cent.”
“The Basel II norms are part of international best practices. All countries are adopting them. We have to conform to them to become globally competitive. However, these can be changed depending upon the domestic situation as well as changes in global practices,” said an RBI spokesperson.
Recently, the Reserve Bank has reduced the risk weight for loans below Rs 20 lakh to 50 per cent. This has promised to provide some relief to borrowers, however, no immediate relief has been announced by the banks.
Over the last few years, banks have been offering a minimum of 85 per cent of the value of the property as loan. For approved and new properties many banks even go up to 90 per cent and often offer other kinds of top up loans to cover almost 95 per cent of the value of the property.
Meanwhile housing loans below Rs 20 lakh have been declared as priority sector lending. Bhatia feels that this will allow banks to pass on some benefits to new loanees as well as existing borrowers.