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Housing Finance - Role of Banks
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Commercial banks are equipped as provider of short-term lending to business and industry. Their deposits are short dated, most of them maturing within a period one year and the rest within 2 to 3 years. Extending long-term loans for 10 or more years exposes the banks to the risk of Asset-Liability mismatch. Additionally it my result in interest-rate risk, as the banks lend for house construction/acquisition at a lower rate of interest on fixed terms. Over the long period of the tenure of the loan, should rate of interests in the market increases, the banks will be exposed to higher cost of borrowing and lending at lower rate of interest, thereby leading to erosion of profitability. Two decades back banks started lending for weaker sector housing schemes. Some of the these loans were allowed on composite basis, i.e. along with loans occupational activity , considering the house as a place where productive activity is carried on, which provide the means for living and for the repayment of the loan. Banks also formulated attractive housing scheme for their own employees with subsidized rate of interest by way of one time benefit in their service. It then started granting housing loan for low-income people ranging from Rs.2 to 5 Lacs and loan for larger amounts for commercial complexes. Loans upto Rs.5 Lacs were included under priority sector advances. All these were during the period when directed rate of interest, as per RBI's guidelines were charged. Credit for financing housing projects is risk-free on account of tangible security. However the loan has to be provided at competitive rate of interest for longer terms, 10 to 15 years, and sometimes even for longer periods. While the longer tenure of the loan posed certain risks, it also benefited the banks with an enduring credit portfolio for a longer duration. Risk factor is linked to the quantum of the aggregate loans. Banking system as at year 31st March 2000 had an aggregate deposits of Rs.10 Lakh Crores. This is further increasing year after. If the banks were to block a negligible quantum say 1% of the funds with them, it still amounts to a staggering Rs.10,000 Crores. Once this amount is covered, yearly incremental deposits and recycling of recoveries effected will form the source for similar disbursements in future. Soft interest rates have come to stay as a global phenomenon. Banks charge around 10% p.a. on housing loans on the average, against their present cost of funds, which is less than 5%. This wide margin is a further cushion to ward of possible threats of rising costs. Even if the rate of interest raised by 2 to 3%, the outstanding loans would still be remunerative or at least at break-even point. Banks prefer this type of loan, as accretion to NPA out of housing loans is considered negligible and remote. We understand your need for a house of your own and we make it simple for you to own the one you choose. Our housing loan scheme for individuals is available at all branches. We have, for your convenience specialised housing loan branches and intensive loaning branches also. Our newly opened Personal Banking branches also specialise in this. Highlighting the competitive features of its scheme the Bank further asserts Enjoy the SBI Advantage:
A special Short Term Housing Loan Scheme for loans of repayment period upto 5 years has been launched by SBI. This scheme carries still lower rates of interest. The approach of the bank is a welcome shift from the attitude of bankers as exhibited during the pre-reform period, and represents the change that onset of competition and prudential banking has usher into the banking system. [Source: ICICI Bank Website] Special Features
Reasons why you must consider an ICICI Home Loan In addition to a host of other features, here are three great reasons why every home loan seeker should consider ICICI Home Finance.
You may be expecting a windfall or inheritance in the near future. Or, even planning on selling some property or assets whose proceeds you can use to pay off this loan. It could also be the case that your income increases considerably and you would want to prepay at least a part of the loan. Most housing finance companies will charge you for prepayment. This prepayment penalty amounts to around 2% of the amount being prepaid. ICICI Home Finance does not levy a charge on part-prepayment. So, if there is a high probability that you will be able to at least part-prepay your loan, then you should consider a loan from a housing finance institution that does not charge you for doing so. When you do prepay, you will get an option on whether you would like to reduce the EMI or the tenure. ICICI Home Finance offers a free accidental death cover at absolutely no extra cost. This is extremely beneficial and protects both, your home and your family. Should you meet with an accident that results in death, your family will not face any problem concerning the loan repayment. The entire loan will be repaid out of the insurance cover and they will not have to contend with any EMI payments. [Source: Website of PNB] PNB reaches out to you with fast, friendly and most convenient home loans for:
Extent of loan for Individual
Security
Rate of Interest ( as on 21.7.2003 ) Rate of Interest under Fixed Option : For loans repayable in/upto
The above rate of interest structure is not applicable on housing loan sanctioned earlier under the fixed option. Rate of Interest under Floating Option : For loans repayable in/upto
Option for Fixed or Floating Rate of Interest exercised by the borrower will not be allowed to be changed for a minimum period of 3 years, where-after any change would be at the discretion of the Sanctioning Authority. Repayment Loan is to be repaid in equated monthly installments within a period of 25 years or before the borrower attains the age of 65 years. Disbursement
[Source: Website of ICICI Bank]
Must it be a bungalow, a condominium, an apartment or a penthouse? The actual area and size will depend on the size of your family as well as your own personal requirements. Think long term. Maybe you and your spouse require just a one-bedroom apartment at this point in time but plan to have two children later. In that case, a two-bedroom or even a three-bedroom is a better option. Why do you need one? Are you purchasing it to reside in it? Or do you view property as an investment and you are looking at capital appreciation. If you are buying to reside in it, you may consider a 3-bedroom apartment. But, if you are planning to rent it out, even if you can afford a 3-bedroom apartment, you may want to settle for a 2-bedroom because the chances of giving it out would be easier. Also, if you are looking at capital appreciation, you should consider making the purchase in the suburbs, where the price appreciation will be higher than in the case of prime property. Where is it going to be? Have you decided in which city or state you want to buy your home? Are you looking at a place where you can eventually retire? Are you considering your home town or a rural or semi-rural set-up? In that case, do you want to buy land instead and construct your own home? If you are purchasing a home in a rural set up or in an area where you are not currently residing, you may have to give a Power of Attorney to someone you trust to handle all the property matters. If it is a resale, have you taken a good look at the inside? Are you happy with the size of the rooms? Would your furniture fit into this house? Does this home receive adequate sunlight? Would you prefer your entrance facing a particular direction? Are you happy with the flooring, wiring and the tiling? Is the paint peeling? Has the plaster cracked? Are you happy with the plumbing? Is there any evidence of termites? Does it have adequate number of bathrooms and toilets? If you had to do work in the house, get an estimate of how much that is going to cost you. Have you taken other factors into account? If it is an apartment, you will have to check out the building too. Is parking available? Is it open or covered? Is there any security provided by the society? Is security provided round the clock? Do you know anything about your neighbours? Is the building well maintained? Does it have a garden? Are you on the lookout for a housing complex that also has a pool and a gymnasium? Is the monthly maintenance affordable? What about water supply? Is it 24 hours? Are there many power cuts in the neighbourhood? What is the distance from your home to the market? Are you comfortable with it? Are you children's schools nearby? What about a hospital or nursing home? What is the distance from the main road? Would you prefer it as far away from the main road as possible. Is public transport easily available? Is there a club nearby? Is there a bank branch in the vicinity or at least an automated teller machine (ATM)? Are you happy with the greenery? How far away is it from your workplace? Note: The text of the schemes indicate the business efforts of the respective banks to market their schemes and to woo the customers. This is the new phenomenon in Indian Banking after the onset of the banking reforms - the gift of creating competition amongst the banks. | |
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