Indian banks can issue long term home loans: RBI panel
Indian banks are allowed to issue 30-year fixed rate home loans under the priority sector category in order to make loans more affordable, announced a Reserve Bank of India panel.
A rating agency issued a warning that banks were lending long-term loans with one-year deposits due to which asset-liability mismatches are significantly high for some banks.
A panel was formed by the central bank to check the feasibility of introduction of long-term fixed rate loans. After studying the circumstances, the panel has reported saying that banks could issue long-term bonds with minimum maturity of five years to generate long-term resources.
According to the report, the Indian financial system has Government Securities (G-Secs) up to 30 years to issue and price 30 year bonds by banks. So the banks can offer longer-tenor fixed rate loans, say up to 30 years that would also help the borrowers by reducing EMIs. Currently, banks are mostly lending loans in 15-20 years segment and rarely they lend 25-years loans.
As per the report, banks which have an exposure to home loans qualifying for priority sector (currently loans up to Rs 25 lakh) should be allowed to raise long-term funds with the means of issuing long-term bonds. And to find buyers for such bonds, institutional investors like pension funds, provident funds, insurance companies can be allowed to invest in them and if necessary, the relevant investment guidelines can be modified.
On the other hand, India Ratings warns that Indian banks are being very dependent on short-term funds for long-term loans such as infrastructure. And the growing short-term funding mismatches that increase refinancing pressures may keep deposit rates high. The RBI panel was constituted following the near disappearance of long-term fixed rate loans.
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