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Tuesday, July 17, 2018

‘Banks overstate house values for loans’

The RBI today warned lenders to refrain from such practices.

Written by Agencies | Mumbai | Published: February 3, 2012 5:51:49 pm

Stating that banks have been found overstating value of houses they finance by adopting practices like including stamp duty and other charges in the cost,the RBI today directed lenders to refrain from such practices.

“It has been brought to our notice that banks adopt different practices for deciding the value of the house property while sanctioning housing loans.

“Some banks include stamp duty,registration and other documentation charges in the cost of the house property,” the Reserve Bank said in a circular.

It said this leads to overstating of the realisable value of the property as stamp duty,registration and other documentation charges are not realisable and consequently the margin stipulated gets diluted.

“Accordingly,banks should not include these charges in the cost of the housing property they finance so that the effectiveness of Loan to Value (LTV) norms is not diluted,” the apex bank said.

Concerned over excessive flow of banking funds to the real estate sector,the Reserve Bank of India (RBI) had in 2010 issued guidelines directing the lenders to provide loans only up to 80 per cent of the cost of property.

As per the rule,a home buyer will necessarily have to arrange at least 20 per cent of the property value on his own before seeking loan from a bank.

In order to check speculation in the real estate sector,the central bank had made it tougher for banks to provide high value loans for properties costing more than Rs 75 lakh,besides raising the provision requirement for loans provided at ‘teaser rates’.

However,in case of small value housing loans of up to Rs 20 lakh,banks can provide loans up to 90 per cent of the property value,the central bank said,adding such loans are part of priority sector advances.

In absence of any LTV norms,banks have been providing liberal loans for buying homes,going up to 90 per cent of the asset value.

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