Banks propose measures to revive flagging housing sector

Saikat Das
moneycontrol.com

Prodded by finance minister P Chidambaram's call, banks have submitted a set of recommendations suggesting changes for revival of the housing sector, to the Indian Bankers' Association (IBA), which will forward the proposals to the finance ministry after getting those passed in its management committee meeting to be held today (Friday).

"The bankers' committee has recommended certain changes in housing sector norms from three perspectives: RBI, FinMin and lenders. While the committee suggests amendments in RBI's prudential norms, it also addresses tax related concerns from the government itself. Moreover, it underscores the need of some actions by banks themselves," a banker with the direct knowledge of the development told moneycontrol.com on condition of anonymity.

This committee was formed taking representatives from some leading banks including the big ones. Some of those recommendations include:

1) The government should increase tax exemption limits from the existing Rs 1.50 lakh to Rs 5 lakh for a single home borrower.

2) RBI should tweak some prudential norms. For example, the central bank can bring down the present risk weightage of 125% to 100% for loans given to builders. If a bank is currently providing Rs 8 crore capital against builders’ loan portfolio of Rs 100 crore, a fall of risk weightage to 100% will require a capital of Rs 6.40 crore for the same portfolio. Similarly, risk weightage for home loans is proposed to be brought down from the existing 75% to 50%.

Lower the risk weightage, smaller is the capital adequacy requirement. This in turn will leave more room for banks to lend more.

3) The moratorium period since the disbursement of first installment of any home loan should be raised to 3 years or more. When a home loan borrower receives the disbursement of first installment, he can opt to repay only the interest and start repaying the principal amount after 18 months within which construction work has to be completed. This is termed as moratorium period.

Most of the state-owned banks now offer 18 months moratorium. However, state owned Central Bank of India is offering a moratorium of 3 years and above depending on the nature of projects. However, private sector lenders, according to a home loan advisory firm, offers higher moratorium period as they charge interest for it.

"The committee has tabled those proposals. However, the finance ministry along with the regulator will take the final call. They may accept partially or fully. They could also ask to rework on it. Some of the suggested changes should help revive the housing sector," said a senior bank official from a big bank, confirming the development. 

Meanwhile, CREDAI, the association of real estate developers also met bankers at IBA almost a week back. The former expressed inability to bring down prices due to higher raw material costs and sky-rocked land prices. They also expressed doubt over the number of inventory (unsold housing apartments) as quoted by the finance minister (nearly 5 lakh). The finance secretary - D K Mittal has recently asked them to conduct a survey on this. CREDAI will survey the number of partially completed projects across cities.

In a meeting with bank bosses, the FM earlier advocated the cause of bring down equated monthly installments for home loan borrowers. He also advised banks to insist on builders, who has taken loan from them to reduce the prices of housing properties and clear their inventories.

saikat.das@network18online.com