RBI panel seeks more liberal norms for home loans

A committee of the Reserve Bank of India has suggested an easing of the financing system for home loans, including introduction of a fixed rate loans for up to 30 years.

The committee headed by RBI's chief general manager K K Vohra also said banks should explore the possibility of levying a pre-payment penalty only on the outstanding amount, and at a ''reasonable'' level.

The report said banks should also look at introducing fixed rate long-term loan with an option of resetting interest rates after every seven to 10 years. This could be in addition to standard fixed rate loan products.

The report has also recommended that banks popularise fixed deposit schemes with tenures of above five years, which are eligible for tax exemption. These initiatives would help in meeting long-term funding needs of banks, it said.

"The Indian financial system has G-Secs up to 30 years, a benchmark to issue and price 30-year bonds by banks. Banks could, therefore, make efforts to offer longer-tenor fixed rate loans, say up to 30 years which would help reduce the EMIs (equated monthly instalments) of the borrowers," it said.

At present, long-term credit, including loans for home purchases, is offered for a period of up to 25 years.