Co-ops may find it easier to offer home loans

CO-OPERATIVE banks will find it much easier to extend home loans in the future, if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has linked the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
    Hence, for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will need to set aside only 50% of the capital they are required to maintain earlier.
    If the loan is for more than Rs 30 lakh in absolute terms but still less than 75% of the property value, the capital requirement will be 75% of standard requirement. However, if the bank provides loans for more than 75% of the value of the property, there is no relief in capital adequacy requirement.
   
CO-OPERATIVE banks will find it much easier to extend home loans in the future, if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has linked the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
    Hence, for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will need to set aside only 50% of the capital they are required to maintain earlier.
    If the loan is for more than Rs 30 lakh in absolute terms but still less than 75% of the property value, the capital requirement will be 75% of standard requirement. However, if the bank provides loans for more than 75% of the value of the property, there is no relief in capital adequacy requirement.
    For banks, the amount of capital they are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank. Capital adequacy ratio is the ratio of a bank's net worth to its risk-weighted credit exposure. The risk weightage, in turn, is the ratio which determines the credit risk in a particular loan asset. Although capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weightage for loans in certain sectors. For instance, for home loans up to Rs 30 lakh, the risk weightage on the loan is 50%. What this means is that banks will need to set aside only 50% of the capital they keep aside for loans with a 100% risk weightage.
    RBI increases or reduces the risk weightage depending on its perception of risk in a particular sector. The higher risk weightage reduces the banks loss in the event of a default. It also discourages lending to that sector by making it more capital intensive.
    The central bank has also relaxed branch and ATM licencing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. The co-operative banks also needs to have net NPAs of less than 10% and should have made a profit in the preceding year.

For banks, the amount of capital they are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank. Capital adequacy ratio is the ratio of a bank's net worth to its risk-weighted credit exposure. The risk weightage, in turn, is the ratio which determines the credit risk in a particular loan asset. Although capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weightage for loans in certain sectors. For instance, for home loans up to Rs 30 lakh, the risk weightage on the loan is 50%. What this means is that banks will need to set aside only 50% of the capital they keep aside for loans with a 100% risk weightage.
    RBI increases or reduces the risk weightage depending on its perception of risk in a particular sector. The higher risk weightage reduces the banks loss in the event of a default. It also discourages lending to that sector by making it more capital intensive.
    The central bank has also relaxed branch and ATM licencing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. The co-operative banks also needs to have net NPAs of less than 10% and should have made a profit in the preceding year.

Home loan rate going south? Forget it

Currently there does not seem to be an early signs of Home loan rate going
southwards.
Home loans are unlikely to turn expensive too despite the increase in cash
reserve ratio (CRR) of the banks, which will make money scarce for banks.
The Reserve Bank of India (RBI) has raised CRR by 50 basis points to 7% for
the banks, but a large section of bankers told ET that they do not expect
lending rates, including home loan rates, to go up.
At the same time, bankers are unlikely to lower the home loans rates for
now. This comes as a bad news for a large number of borrowers who had
expected interest rates to come down post credit policy. Earlier, Deepak
Parekh, chairman of HDFC bank, the largest home loan provider, had said HDFC
would consider a lower lending rate if RBI does not hike CRR.

Investment schemes for NRIs

For NRIs/ PIOs/ OCBs there are broadly two categories of investments - repatriable (investments than can be taken back) and non-repatriable (investments that cannot be redeemed). Repatriable investments allow for investment up to 100% equity by NRIs in specified industries and also cover portfolio investments. Equity investment up to 100% is also permissible for non-repatriable investments.

Portfolio investment scheme

NRIs can acquire shares/ debentures of Indian companies or units of domestic mutual funds through the stock exchanges in India. There is an overall ceiling of 5% of paid-up equity share capital of the company/ paid-up value of each series of convertible debentures for purchase by NRIs/ OCBs. An application for this has to be submitted to the Reserve Bank though a designated branch. These designated branches are the main branches of major commercial banks located close to the stock exchange(s). An NRI can operate through only one selected branch for this purpose. The Reserve Bank approval is valid for a period of five years after which it may be renewed by a letter.

This scheme also allows for

Sale of shares/ bonds/ debentures by NRIs to residents Transfer of rupee securities by non-residents as gifts Transfer of rupee securities to non-residents as gifts Loans abroad against securities provided in India Loans in India to NRIs against shares/ securities/ properties held by them in India Loans in India to NRIs against security of NRI Bonds issued by State Bank of India Loans in India against guarantees by non-residents Loans to residents against shares/ securities/ properties in India from non-resident relatives.

Procedure for sale/ transfer

In case of shares/ debentures/ bonds acquired by NRIs through the portfolio investment scheme, a general exemption is provided by RBI if the sale is arranged through the same designated branch through which they were purchased. In other cases, necessary permission has to be obtained from RBI. For sale/ transfer of shares/ debentures to residents by private arrangements, permission has to be obtained from RBI. General permission from the RBI is also available for transfer of shares, bonds and debentures by way of gifts to resident close relative(s). For sale/ transfer of shares/ debentures of Indian companies to other NRIs, no permission is required from RBI. The transferee NRI would need permission for purchase of the shares. Government securities/ units can be transferred through an authorized dealer while the units can also be repurchased directly by UTI. Repatriation possible if the remittances were made from abroad of from NRE/ FCNR accounts; sale proceeds from securities purchased out of NRO accounts can only be credited to the NRO account. Interest earned after the financial year 1994-95 onwards can be remitted as permitted by Reserve Bank.

Remittance of income on non-repatriable investments

Income/ interest accruing during the financial year 1994-95 and onwards on bank deposits and investments held on non-repatriation basis can be remitted in the following manner. i. Upto US $ 1,000 or its equivalent in full and one-third of the balance income earned during the financial year 1994-95 ii. Upto US $ 1,000 or its equivalent in full and two-third of the balance income earned during the financial year 1995-96 iii. Entire income earned during the financial year 1996-97 and onwards iv. Entire income earned during the financial year 1996-97 and onwards The NRI will designate a branch of an authorized dealer; the designated branch will allow the remittance of the funds to the NRE/ FCNR account. General permission is available on transfer of shares/ debentures/ bonds held on non-repatriation basis to residents; sale proceeds are credited to an NRO account.

Investment in immovable property

Non resident Indians can acquire/ hold/ transfer/ dispose of immovable property. No permission is required for this purpose. They cannot purchase agricultural land, farm houses and plantation property. However, on acquiring foreign citizenship, permission from RBI is required. RBI has also granted general permission to Persons of Indian Origin to acquire immovable property in India. The general permission is also applicable for transfer/ disposal of the properties (other than agricultural land, farm houses, plantation property). Under this, Persons of Indian origin can acquire immovable properties in India: i. on non-repatriation basis for residential purposes - The purchase consideration has to be made by way of remittance from abroad or NRE/ FCNR account. The sale proceeds cannot be repatriated. ii. on repatriation basis for residential purposes as well as commercial properties - The purchase consideration has to be made by way of remittance from abroad or NRE/ FCNR account. Repatriation facility is limited to sale proceeds of two residential properties; there is no such restriction in respect of commercial properties. iii. by way of gift/ inheritance - The gift should have been received from a relative who may be an Indian citizen or person of Indian origin; general permission is available only in respect of two houses. iv. out of rupee funds - Prior permission of the Reserve Bank of India is required. Residential or commercial properties can be let out for rent if not for immediate use, The rental proceeds or proceeds of any investment of such income has to be credited to the NRO account.

Repatriation of sale proceeds

The general permission is also available in case of disposal of the immovable properties. Sale proceeds equivalent to the original amount of purchase consideration remitted can be repatriated after a lock-in period of three years. The balance amount has to be credited to the NRO account of the seller. The period of lock-in is applicable from the date of final purchase deed or from the date of payment of final installment of consideration amount, whichever is later.

Procedure

Persons of Indian Origin are required to file a declaration in form IPI 7 with the Central Office of the Reserve Bank. This must be filed within 90 days from the date of purchase of immovable property or final payment of purchase consideration. A certified copy of the documents evidencing the transaction and bank certificate regarding the consideration paid is to be filed along with the form. Application for permission for remittance is to be filed in form IPI 8 within 90 days of the sale of the property.

Can NRIs obtain housing finance?

Can NRIs obtain housing finance? Certain financial institutions grant housing loans to NRIs for acquisition of houses/ flats for self-occupation. Authorized dealers can grant loans to NRIs for acquisition of house/ flat for self-occupation on their return to India. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or from funds in NRE/ FCNR accounts. Indian companies can grant housing loans to their employees deputed abroad and holding Indian passport. All these loans are subject to specific loan covenants; details can be obtained from banks/ institutions.

 

Fed steps in to protect home loan borrowers

Lenders would have to confirm that a borrower can afford a mortgage before making the loan under protections proposed by the Federal Reserve on Tuesday following the havoc wrought by the US subprime loan crisis.
The proposals are intended to replace loose standards that have put many Americans at risk of losing their homes because they took out loans they could not afford and may not have fully understood. The new rules will not assist today’s struggling homeowners but would give consumers the right to sue mortgage lenders who act unfairly and deceptively in preparing loans. Millions of Americans who stretched to buy homes in recent years face the risk of foreclosure as mortgages with initial “starter” rates reset sharply higher.
The Fed’s board unanimously approved the standards recommended by its consumer rights staff and said they strike a balance by protecting consumers while preserving their access to credit. “These new rules, once adopted, would apply to all mortgage lenders,” Fed Chairman Ben Bernanke said as the board met to consider the proposal. He said the rules would be “consistently applied and vigorously enforced” by state and federal regulators. The new rules would put the nation’s 50,000 mortgage brokers under some federal supervision, according to Fed staff. The proposal was criticised by several leading lawmakers and praised by an industry group. The Fed has been faulted for failing to use all its consumer protection authority during the housing boom that ended in 2005. — Bloomberg