Realty show: Banks face volley of questions
MARCH 29, 2007: The Reserve
Bank of India (RBI) has asked a host of uncomfortable
questions to banks related to their real estate
and home loans portfolio. The central bank
has asked banks their opinion on whether they
expect any correction in property prices and
whether NRI and FDI inflows could have any
impact on the housing segment.
RBI has even asked banks the processes they
follow for valuation of property, the market
sources they rely on to compute the value
of the property, and the documents that are
obtained from customers while giving loans.
They have also asked banks to furnish information
on the relationship of loan to property value
— which is the margin maintained for
home loans.
The central bank has also asked banks whether
they expect real estate and home loan demand
to come down in the next two years and what
are the risk factors associated in lending
to this sector. Other uncomfortable questions
include whether banks are conducting any stress
test on its real estate and home loan portfolio,
whether they have any reset period on fixed
rate loan and what is the benchmark strategy
to reset interest rate incorporated in the
loan scheme.
Bankers said that RBI has set up an internal
committee to understand the trend on the real
estate and home loan segment. The data will
enable the committee to track the historic
development in this segment. RBI is particularly
concerned about this portfolio because of
a huge rise in the property prices across
the country, coupled with phenomenal rise
in the home loan portfolio in the last two-three
years.
The list of 32 questions include information
on whether there is any linkage between the
loan amount and interest rate and linkage
between the property price and interest rate
charged by banks. RBI also wanted to know
the impact on the home loan book due to an
increase in risk weightage and provisions
imposed in the recent past. Also, they has
asked whether the increase in risk weightage
and provisions have translated into a rise
in lending rates to this segment. Among the
routine data, RBI has asked about the interest
rate changes on housing loan since 2003, proportion
floating rate loan to the total portfolio,
minimum and maximum tenure of loan, share
of principal and interest in EMI amount. Besides
data on bad loans during the last two years,
break of fraud and reasons for fraud are sought
Source: The Economic Times
