Looks like more rate hikes are on the way
Category: RBI
Nowadays newspapers are full of real estate ads which offer 80-20.In such schemes, the EMI on the housing loan availed of by the individual borrower is serviced by the builder during the construction period.
Well, guess what the RBI has just banned this practice.
The Reserve Bank today asked banks to link the disbursal of home loans to stages of construction to protect the interests of buyers and contain the fallout of “innovative” housing financing schemes.
“In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses…,” an RBI notification said.
Upfront disbursal “should not be made in cases of incomplete/under-construction/green field housing projects,” it said.
The notification follows the introduction by some banks of “innovative housing loan schemes” in association with developers/builders, where upfront disbursal of housing loans is made to builders without being linked to the various stages of construction.
Also, under such schemes, the interest/EMI on the housing loan availed of by the individual borrower is serviced by the builder during the construction period. These loan products, the RBI said, are popularly known by names such as 80:20 and 75:25 schemes.
The RBI said such home loan products are likely to expose banks and their borrowers to additional risks.
The risks include disputes between borrowers and builders; default and delayed payment of interest/EMI by the builder on behalf of the borrower, and non-completion of the project on time.
“Further, any delayed payments by developers/builders on behalf of individual borrowers to banks may lead to lower credit rating/scoring of such borrowers by credit information companies…,” according to the RBI notification.
The central bank said that in cases where bank loans are disbursed upfront on behalf of individual borrowers in a lump-sum to developers without any linkage to construction stages, banks run disproportionately higher exposures with concomitant risks of fund diversion.
As I had blogged earlier, the real estate bubble in India has peaked and is now deflating.
RBI’s 25 bps rate cut was really no surprise to anybody.
Here’s what Chidambaram probably told RBI Governor Subbarao before the rate cut ( lyrics From MJ’s Beat It !)
I Told You Don’t You Ever Come Around Here
Don’t Wanna See Your Face, You Better Disappear
The Fire’s In My Eyes And My Words Are Really Clear
So Cut It, Just Cut ItYou Better Run, You Better Do What You Can
Don’t Wanna See No Blood, Don’t Be A Macho Man
You Wanna An Extension, Better Do What You Can
So Cut It, If You Wanna Remain GuvJust Cut It, Cut It, Cut It, Cut It
No Guv Wants To Be Pressurized
Showin’ How Funky Strong Is Your Fight
It Doesn’t Matter Who’s Wrong Or Right
Just Cut It, Cut It
Just Cut It, Cut ItJust Cut It, Cut It
Just Cut It, Cut ItI am Out To Get You, Better Listen While You Can
Don’t Wanna Be A Boy, You Wanna Be A Man
You Wanna Stay Guv, Better Do What You Can
So Cut It, Just Cut ItYou Have To Show Them That You’re Really Not Scared
You’re Playin’ With Your Extension, This Ain’t No Truth Or Dare
I’ll Kick You, Then I Will Beat You,
Then I’ll Tell You It’s Fair
So Cut It, If You Wanna Remain GuvJust Cut It, Cut It, Cut It, Cut It
No Guv Wants To Be Pressurized
Showin’ How Funky Strong Is Your Fight
It Doesn’t Matter Who’s Wrong Or Right
Just Cut It, Cut It
Just Cut It, Cut It
Just Cut It, Cut It
Here is the actual song