RBI has increased existing limits on individual home loans by co-operative banks. The increased limits will apply to both Primary (Urban) Cooperative Banks (UCBs) and Rural Cooperative Banks (RCBs).
Limits for Tier I or Tier II urban cooperative banks will be revised from Rs 30 lakh (Tier I) or Rs 70 lakh (Tier II) to Rs 60 lakh (Tier I) or Rs 1.4 crore (Tier II) respectively. With regard to RCBs, the limits will increase from Rs 20 lakh to Rs 50 lakh for rural cooperative banks with an assessed net worth of less than Rs 100 crore; and from Rs 30 lakh to Rs 75 lakh for other rural cooperative banks. BCRs can be both state cooperative banks and district central cooperative banks.
“The RBI has seen cooperative banks as equal partners in growth, so has raised their lending limit by 100%, meaning these banks can now lend twice the amount they did until now. This move can be seen as a major boost for the real estate sector as it will now improve the availability of easy credit for the residential housing segment,” said V Swaminathan, Executive Chairman, Andromeda and Apnapaisa.
The limits were last revised for UCBs in 2011 and for RCBs in 2009. In view of the increase in house prices since the last limit revision and in consideration of the needs of the borrower, it was decided by RBI to increase the existing limits.
“RBI has increased existing limits on individual housing loans by Co-operative Banks for both Urban Co-operative Banks and Rural Co-operative Banks. This is a welcome move given that the limits were last revised almost a decade ago and with rising housing and property prices, an increase in the limit was needed. . This would give some boost to the affordable housing segment,” says Aarti Khanna, Founder and CEO of Askcred.
Borrowers are eligible for housing finance for construction/purchase of houses/apartments by individuals or for repairs, alterations and additions to houses/apartments by individuals.
Home loans can be repaid within a maximum period of 20 years, including a moratorium or repayment holiday. The moratorium or repayment holiday may be granted at the choice of the beneficiary, or until the completion of the constructions, or 18 months from the date of disbursement of the first installment of the loan, whichever comes first.
In order to make housing finance affordable, banks may consider setting installments on a phased basis, if there is a reasonable expectation of growth in the borrower’s income in future years.
A graduated basis means setting lower repayment payments in early years and gradually increasing the amount of payments in later years, coinciding with the expected increase in income in later years.
Considering the higher risks associated with lump sum disbursement of sanctioned housing loans and client adequacy issues, UCBs were advised that the disbursement of sanctioned housing loans to individuals should be closely linked to the construction stages of the housing project/houses and no upfront disbursement shall be made in cases of incomplete/under construction/greenfield housing projects.