RBI has increased the existing limits for individual housing loans from the cooperative banks. The increased limits apply to both primary (urban) credit unions (UCBs) and rural credit unions (RCBs).
The limits for Tier I or Tier II Urban Cooperative Banks will be changed from Rs 30,000 (Tier I) or Rs 70,000 (Tier II) to Rs 60,000 (Tier I) or Rs 1.4 crore (Tier II). Regarding RCBs, the limits increase from Rs 20,000 to Rs 50,000 for rural co-operative banks with an estimated net worth of less than Rs 100 crore; and from Rs 30 lakh to Rs 75 lakh for other rural credit unions. RCBs can be both State Cooperative Banks and District Central Cooperative Banks.
“RBI has treated the credit unions as equal growth partners and increased their credit limit by 100%, meaning these banks can now lend twice as much as before. 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 segment,” said V Swaminathan, Executive Chairman, Andromeda and Apnapaisa.
The limits were last revised for UCBs in 2011 and for RCBs in 2009. Taking into account the increase in real estate prices since the limits were last revised and taking into account the needs of borrowers, RBI has decided to increase the existing limits.
“RBI has increased the existing limits on individual credit union home loans for both Urban Credit Unions and Rural Credit Unions. This is a welcome move considering the limits were last revised almost a decade ago and as house and property prices have risen, the limit has required an increase. This would add some momentum to the affordable housing segment,” said Aarti Khanna, Askcred Founder and CEO
Borrowers are eligible for housing finance for the construction/purchase of houses/apartments by private individuals or for repairs, conversions and additions to houses/apartments by private individuals.
Home loans can be repaid within a maximum of 20 years, including a moratorium or repayment holiday. The moratorium or repayment holiday may be granted at the beneficiary’s option or until construction is completed or 18 months after payment of the first installment of the loan, whichever is earlier.
To make home finance affordable, banks may consider staggering rates if the borrower’s income is reasonably expected to grow in the coming years.
Staggered means that lower repayment installments are set in the first few years and the amount of the installments is gradually increased in the following years according to the expected increase in income in the following years.
Given the higher risks associated with lump-sum sanctioned home loan disbursements and customer eligibility issues, UCBs were advised that sanctioned home loan disbursements to individuals should be closely linked to the construction phases of the housing project/homes in the case of incomplete/under construction housing projects on the green field no advance payment should be made.