|
Banks interest rate blitz to curb
home loan defaults
In the banking fraternity, the probable nightmare
of the notorious housing loan defaults rearing its ugly head
again in the form of non-performing assets (NPAs) in their
home loan portfolio may be far-fetched. There is a marked
change in the strategy of banks even as the consumers’
propensity to default with hike in interest rates is being
reined in.
The murky side is that that the spiralling effect of rising
interest rates and concerns of defaults have caused property
prices in New Delhi and Mumbai to decline an average 15% in
the past six months, after showing a 60% rise in the last
two years.
It has been brought to light that the incidence is high among
borrowers, who buy houses as an investment. Mortgage default
is also not showing signs of slackening for the category that
borrows to fund a second home or an investment property for
rental-income purposes or to speculate on value appreciation.
The workaround is charging a differential home loan interest
rate to customers taking loan to buy a second
home. Punjab National Bank (PNB) has also become the first
among Public Sector Banks to embark on this. PNB has raised
the interest rates in both floating and fixed categories for
home loans above Rs. 20 lakh and Oriental Bank of Commerce
has raised home loan rates for up to Rs. 20 lakh for new customers
only. The revision of home loan rates was long overdue for
these banks, though.
For want of a system that segregates those who are borrowing
for the first and second time, some banks are planning to
insist on affidavits from first-time borrowers stating they
do not own another house. First-time borrowers, who wish to
buy property to live in, have been known to be sincere payers
and are less likely to default than those buying property
as investment. Moreover, charging forbidding interest rates
on loans for a second house can discourage non-serious borrowers
as well as home price arbitrage seekers.
The findings of analysts at rating agency Crisil about certain
factors inhibiting the impact of the rise in interest rates
on loan repayment is very reassuring. To begin with, income
levels have risen up to 20 per cent in the past few years.
By the time the loan is repaid the property value would also
have risen. Pre-payment of loans is popular with consumers
who pay up to the extent of 10 per cent of the loan, after
they receive their yearly bonus.
Opening itself to differential rate regime to keep small
home loan borrowers out of the loop in its reduction of the
risk weights on home loans to 50 per cent from 75 per cent,
the recent measure by the RBI has also eased the impact of
rising rates on mortgage lenders.It has raised optimism among
bankers that the Central Bank may be on the verge of ending
the nine rate increases it had effected since October 2004.
It has already raised its benchmark interest rate five times
in the past year to a five-year high.
Back
To Home Loan Articles »
|
