MUMBAI: RBI is worried about the long extension of home loan tenures. Deputy governor M Rajeshwar Rao on Thursday said that the regulator is not considering defining an “unreasonable elongation” as the bank’s board will have to consider this. “It is for the bank board to decide having regard to the tenor and the repayment capacity of the individual borrowers,” he said.

“We have already discussed this with the CEOs of the banks and conveyed our concerns and what actions they need to take,” said Rao, adding that RBI will issue detailed guidelines shortly.
A retired central banker said that besides hiding the stress in the system, elongating tenures also blunts the impact of the monetary policy as borrowers do not immediately feel the pressure of rising rates, especially when home loans are the biggest drivers of credit growth.

According to bankers, a temporary extension of tenure is not always a cause for worry as interest rates move in cycles, and should RBI cut rates in two years, the loan would revert to the original tenure. “The average tenure of loans is still below 10 years because of repayments and refinancing,” said a banker. He added that pre-payments take place because of an increase in income, windfall gains or sale of property. A RBI statement said that the supervisory reviews undertaken by the central bank and public feedback had revealed several instances of floating rate loans by lenders without proper consent and communication to the borrowers.

Source link


Please enter your comment!
Please enter your name here