Mumbai: The upward trend in home loan rates looks set to continue with banks understood to be considering higher charges for those seeking loans for a second home or above the Rs15-lakh to Rs20-lakh limit.
This could further accelerate the slowdown in the home loan segment, which began in the end of 2006, following a series of measures by the Reserve Bank of India designed to reduce credit flows to sensitive sectors such as realty, stock-markets and consumer durables.
India’s largest private sector lender, ICICI Bank, is considering charging more for loans for second homes.
“As of now, we don’t differentiate but we are evaluating the scene and will take a decision in a week’s time,” Bank’s Senior General Manager Rajeev Sabharwal told PTI here today.
The bank is already discouraging second home buyers with credit norms being tighter for this category. “Applications for second homes get filtered and we also charge higher margins of around 25% to 35% for such loans.”
There were two options that could be considered, he said. The first was charging more for second loans while the second was charging less for loans below Rs15 lakh. Presently, ICICI Bank is charging 12% for home loans of Rs15 lakh.
Asked whether the move to impose higher charges on second home loans was prompted by the RBI’s directive to reduce credit flows to the realty sector, Sabharwal said that “the market has already slowed down.”
“Our objective is not to curtail growth but only to look at priority sector and loans of lower value and see how they could be made more affordable.”
The Reserve Bank had recently imposed higher provisioning and risk weights for credit to certain sectors, among them realty, in a bid to prevent what it called “overheating”.
Union Finance Minister P Chidambaram had also called upon banks to curb retail loans.
The realty sector had witnessed a steep rise in valuations which some analysts described as unsustainable.
However, following a series of rate hikes combined with a 1.50% increase in CRR limits in three phases effected by the RBI since November last, credit flows to sensitive sectors are beginning to witness a slowdown.
While first-time and home loan borrowers for self use are unlikely to be affected by differential rates in case banks decide to implement such a move, those going in for second homes will definitely find their costs rising.
However, the efficacy of this move in preventing speculation in the realty sector will depend upon the banks’ ability to ascertain whether a loan sought is for the first time or for self use or for a second home.
Banks will now have to conduct this exercise diligently in line with the RBI’s policy to check retail loans.