Home Loans to get Cheaper

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Home Loans to get Cheaper

Reserve Bank of India (RBI) has recently allowed banks to raise long-term funds through bonds for lending to affordable housing and infrastructure sectors. As a result, home loan rates are expected to come down for new borrowers in the near term.

The funds collected by banks through these bonds will be exempted from cash reserve and liquidity requirements. The new norms have been announced by the RBI following announcements made in the Budget by Finance Minister Arun Jaitley. This move will help to address their asset-liability mismatches.

Amit Bhatia, director and head, assets and business banking, Deutsche Bank India, says, “In the shorter term, interest rates for existing borrowers are unlikely to change. New borrowers, though, may benefit from lower rates since banks would compete among themselves to attract this segment.”

Affordable housing covers housing loans up to Rs 50 lakh (for houses priced up to Rs 65 lakh) located in six metropolitan centres-Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad-and Rs 40 lakh (for houses priced up to Rs 50 lakh) in other centres.
The definition is periodically revised by the RBI. The RBI has stated that infrastructure and affordable housing need relatively long-term financing compared to standard bank loans. “If banks finance such long-term loans with short-term deposits, they create a risky asset-liability mismatch.

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