a)
Banks
are free to extend mortgage loans for construction of houses,
upto a maximum period of fifteen years. The commercial banks
would ensure matching of asset liability. For the purpose
the commercial banks are encouraged to float long-term housing
bonds of not less than 10 years maturity.
b)
While
extending financing facilities to their customer, the banks
would ensure that the installment 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 fulfills the prudential norms and instructions issued
by the State Bank and do not impair the soundness and safety
of the bank itself.
c)
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.
d)
Commercial
banks shall ensure that at no time their total exposure
under house financing exceeds 5 % of their net advances.
e)
The housing
finance facility would attract a minimum debt equity ratio
of 70:30
f)
The existing
limit of Rs 500,000/- fixed in respect of housing finance
by the banks has been enhanced immediately to Rs 5 million.
Please acknowledge receipt.