The Hindu Business Line : Banks differ with RBI on housing loans

DISAGREEMENT is brewing among the banking family over housing issues. While the patriarch - the Reserve Bank of India - has expressed worry over the mad rush by banks to extend home loans through severe undercutting of interest rates, not everyone in the family is willing to share its concern.

In fact, a section of the bankers feel that RBI's caution sent out through its recently released Annual Report could well have been ill-timed since the home loan market is looking lucrative and secure for the lenders.

"One has to ask whether this is the right time to cry stop. We have just taken one step forward when we are being told to pull back," the Chairman and Managing Director, United Bank of India (UBI), Mr Madhukar, said.

He said that the signals from the central bank could lead to confusion among lenders and have a negative effect on the growth of the banks' housing loans portfolio.

"The home loan portfolio is the most secure portfolio. The mortgage of the home is always there," Mr Madhukar said.

The RBI in its Annual Report 2002-03 has said that though the increase in home loan disbursements shown by the banks was heartening, the "cause for potential worry is that by lowering the lending rates banks are approaching the cost of funds."

It has pointed out that in some instances banks set the lending rate for housing lower than the PLR in view of the low risk weight. In view of this, the RBI has hinted at prescribing a benchmark rate for home loans.

UBI, like most other banks, has been aggressively cutting home loan rates to one of the lowest ever offered by it. Thus, while a five-year loan is available at 8.5 per cent there is a 50 basis points cut if the loan is taken jointly with the spouse.

There is a further cut that takes the interest rate down to 7.5 per cent if the loan is taken along with an insurance cover or by pledging certain specified securities.

The Chairman and Managing Director, Indian Overseas Bank, Mr S.C.Gupta, also does not see banks' aggressiveness on the home loan front as a cause of concern.

"I do not think that housing loans would cause of problem for banks. One should only take utmost care that the principles of lending are diligently followed," Mr Gupta said.

He also pointed out that the low rates could be justified since housing finance sector was one of the safest lending avenues for the banks.

"The recovery is nearly 99 per cent. With virtually no fear of non-performing asset (NPA) bank should not have a problem on this count," Mr Gupta said.

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