Banks can give up to 90 per cent of the value of the property in case of small value home loans up to Rs 20 lakh. But in case of loans above Rs 20 lakh, the loan to value ratio (LTV) should not exceed 80 per cent, said the Reserve Bank of India, in a notification issued today. Following the announcement in the second quarter review of the Monetary Policy, the RBI today issued the circular putting a regulatory ceiling on the LTV ratio in respect of banks’ housing loan exposures, in order to prevent excessive leveraging by banks. Currently, there is no regulatory ceiling on the LTV ratio in respect of banks’ housing loan exposures.

Teaser loans

With regard to ‘teaser loans’ (comparatively lower rates of interest in the first few years, after which rates are reset at higher rates), the RBI said this practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective. In view of the higher risk associated with such loans, the standard asset provisioning on the outstanding amount has been increased from 0.40 per cent to 2 per cent with immediate effect. The provisioning on these assets would revert to 0.40 per cent after one year from the date on which the rates are reset at higher rates if the accounts remain ‘standard’, the RBI said.

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September 2021