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Urban cooperative banks want ceiling on housing loans lifted

BS Banking Bureau

Urban co-operative banks have urged the Reserve Bank of India to do away with the ceiling of Rs 1 million for housing loans.

These banks have impressed upon the central bank that despite there being a good demand for home loans, the Rs 1-million cap per loan was proving to be a disadvantage in competing with public and private sector banks.

The UCBs have contended that there is good appetite for home loans over Rs 1 million and the central bank should allow them to extend such loans, albeit with a rider that loans over Rs 1 million will not be eligible for recognition as priority sector lending.

Currently, the entire housing loan portfolio of the UCBs qualifies for classification as priority sector lending.

"Agreed that UCBs are small, but there is no rationale behind putting such restrictions. While the public and private sector banks are making hay while the sun shines (literally!) by cashing in on the demand for home loans, why should UCBs be shackled," said a senior co-operative banker.

He said that other sector players are walking away with big ticket customers wanting to avail of home loans running into millions and hoped that the RBI would give them a level playing field in this regard.

"If doing away with the cap altogether is not possible, then the RBI could at least raise the bar to Rs 2-2.5 million," said another urban co-operative banker.

Most of the banks are pushing home loans as this form of asset exposure is safe compared to other types of loans as the possibility of default in servicing interest or repayment of the principal is minimal due to the sentimental attachment to homes in the country.

The loans have also become attractive on account of the tax exemptions extended by the government to the housing sector and low interest rates.

The average size of a housing loan extended by the UCBs is currently around Rs 500,000 contracted at 12-13.5 per cent interest per annum. The tenor of the loans ranges between 120 and 180 months.

As per the present regulatory prescription, co-operative banks have to extend 60 per cent of their advances to the priority sector, which, among others includes housing, transport (financing of commercial vehicles, taxis and autos), professionals, personal loans up to Rs 50,000 and loans to the weaker sections of society. The balance 40 per cent could be lent to the corporate sector.

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