The Reserve Bank of India is likely to outline detailed guidelines on documentation for home loans and as well as margin requirements in the forthcoming Credit Policy on April 29.
The move aims at regulating the unbridled growth in home loans. The central bank feels that in their over-aggressiveness in building home loan portfolios some banks may end up burning fingers.
"In a deregulated regime, the RBI cannot regulate interest rates. It can, however, see to it that banks do not undercut or make losses while pricing home loans," said a source.
The RBI has recently detected some cases where customers have raised loans from banks and housing finance companies for buying homes and used the funds for commercial purposes.
These loans were raised by forging documents and the central bank suspects that banks officials were in cahoots with real estate agents, builders and customers.
There have also been instances where several banks had extended home loans for the same property.
Interest rates for home loans have been falling continuously. There has been fierce competition in the home loan arena with most of the commercial banks focussing on this sector as loans to corporates have seen a slower growth.
Banks across the country have been aggressively pushing home loans. In fact, the phenomenal non-food credit offtake in 2002-03 was largely on account of the growth in retail loans, driven by home loans.
There has been a feeling that with increasing competition banks are not taking enough care on the documentation part.
The finance ministry had also written a letter to the RBI urging the regulator to keep a close tab on the increasing home loan portfolio of commercial banks.
The RBI is likely to come out with detailed guidelines on the margin requirements on the declared value of the property for home loans.
The regulators is likely to set a margin of 15-20 per cent of the declared value.
In case of a default, the margin will protect the banks to some extent and they will be able to recover the money by selling the asset.
Some banks have in recent times been offering home loans of up to 100 per cent on the value of the property.
In order to avoid unnecessary undercutting of interest rates, RBI is also likely to ask banks to seek board approval for the interest rates at which these loans are being offered.
This would then mean that banks would not be able to offer interest rates if they are incurring loss on it.
