Top India Banks may Accelerate Loan Pay Backs from Consumers

By Dr Suvrokamal Dutta

It’s all going downhill for housing loan customers. It has come into the notice of The India Street that if you have opted for a house loan, you may have to repay part of your borrowings or suffer very high Equal Monthly Installments (EMIs). You may ask: Why is it so? The answer is there is a scurry among banks to get rid of bad debts following successive interest rate hikes in the last two or three months.

The pivotal factor here is that private sector banks such as ICICI Bank and HDFC bank, who followed quite an aggressive strategy in the home loan segment during the low interest rate regime two years ago, are now focusing on tools like part repayment of loan or increased EMIs. They are implementing this route so that borrowers meet their liabilities before they retire.

If experts are to be believed, the bank has managed to absorb the effect by enhancing the tenure, which in large chunk of cases are limited to the active service age. However, it is worthwhile pointing that those in their late 30s or 40s will face pressure to repay part of the loan in advance.

When I contacted three prominent private sector banks (wherein the interest rate rose 4 per cent in the last year), I came to the conclusion that they are finding it difficult to manage potential defaults and have more or less resorted to asking debtors for prepayment of some part of the loan or agreed to enhanced EMIs.

In an ideal scenario, borrowers take a loan for a time period of around 15-20 years. And that is where a further enhancement in the tenure will mean that borrowers in their late thirties would have to pay monthly installments for a few years beyond the retirement age.

“The move to enhance EMI or repay a part of the loan will play a prominent part in assisting borrowers to repay the complete amount before the retirement age,” pointed out top official at ICICI bank.

When one takes a closer look at the home loan trends in last five years or so, you realize that home loan rates started moving northward sharply since October last year as the Reserve Bank of India raised short-term lending rates and the cash reserve ratio more often in order check demand and of course ease inflation. Therefore, unless the situation eases, the accelerated EMI situation may get worse before it gets better.

Breaking News: India Banks Will Only Offer Real Estate Loans to Earthquake Resistant Buildings

New NDMA guidelines: Loans only for earthquake resistant buildings

By Vipin Agnihotri

Under new guidelines from the National Disaster Management Authority (NDMA), banks may only provide loans for earthquake resistant buildings. The main reason behind this is to enhance collateral security and also caution the borrower against purchasing substandard properties. Talking about NDMA, it was formed under the Disaster Management Act 2005 and is headed by Prime Minister, Dr Manmohan Singh.

If experts are to be believed, the recent guidelines clearly pinpoint the fact that banks will take into account the compliance of seismic safety before giving home loans and loans for construction of multi storeyed complexes.

It has come into the notice of The India Street that NDMA has sent copies of the guidelines to the Ministry of Finance, which in turn will forward it to the Reserve Bank of India (RBI) for issuance. As far as guideline is concerned, all building structures- residential and commercial, including shopping malls, multiplexes and bridges whose completion is after June 30, 2007- will have to mandatorily adhere to earthquake resistant design.

In my opinion, it’s a brilliant move, as the banks will lend only to earthquake resistant homes. In addition, the banks can set out responsibility on the construction industry to comply with the earthquake resistant codes and follow construction routines that achieve earthquake resistant homes.

When The India Street contacted experts in this regard, they were of the view that this will strengthen the collateral security of the bank against which the bank gives loans. “There is no doubt that new policy will ensure that homes attain a top quality standard of earthquake protection,” pointed out Zaheer Abbas, real estate expert based at India adding that banks will also feel secured to offer housing loans, as it gives strength to their collateral security, thereby minimizing their risk profile.

Not so long ago, banks were in a state of confusion when properties mortgaged were destroyed in an earthquake. The recent guidelines from the NDMA for revised building codes reveals that there is a requirement for better protection level against a natural calamity.

The main benefit of adopting higher levels of earthquake protection is that a much lower interest rate can be negotiated with the banks for the particular project.