Please refer to BSD Circular Letter No.16 dated 13^th July, 2001, on the captioned subject. To further facilitate banks to develop and market their housing finance products for encouraging early homeownership through housing finance the above circular letter has been substituted as under:

a)      Commercial banks shall ensure that at no time their total exposure to housing finance exceed 10% of their net advances.

b)      The housing finance facility would attract minimum debt equity of 80:20.

c)      Banks are free to extend mortgage loans for housing upto a maximum period of 20 years. The commercial banks would ensure matching of asset-liability and are encouraged to float long-term housing bonds of not less than 10 years maturity.

d)      The maximum per party limit will be Rs. 7.5 million. 

e)      While extending financing facilities to their customers the banks would ensure that the instalment of the loan extended by them is commensurate with the cash flow and payment capacity of the borrower. This measure would be in addition to banks’ usual evaluations of each proposal concerning credit worthiness of the borrowers as also the fact that the banks’ portfolio under housing finance fulfils the prudential norms and instructions issued by the State Bank and do not impair the soundness and safety of the bank itself.

f)       Banks are encouraged to develop floating rate products for extending housing loans, thereby managing interest rate risk to avoid its adverse effects. State Bank would also encourage banks to develop in-house system to stress test their housing portfolio against adverse movements in interest rates as also maturity mismatches.

It is further informed that the above guidelines will become part of the Prudential Regulations for Consumer Finance, which are in the process of finalization and will be issued shortly.

This supercedes BSD Circular Letter No. 16 dated 13-07-2001.

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