The Reserve Bank of India (RBI) Governor Shaktikanta Das has recently asked the banks and NBFCs to be well-advised to review top-up housing loans and gold loans.
He said the entities to be aware of the practices and also take remedial action.
The Governor observed that borrowers were using top-up loans in unproductive segments or for speculative purposes
“It is noticed that the regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds are not being strictly adhered to by certain entities,” he had said.
ETBFSI talked to a few leaders in the home loan and gold loan sectors to understand their views on the matter.
“Companies and NBFCs in the lending sector need to avoid over-leveraging and prospect of rise in non-performing assets (NPAs) by strictly adhering to the loan to value (LTV) ratio and risk weights, assessing the credit history of the applicants as well as carefully monitoring the end-use while processing home-loan top-up applications,” said Manish Sheth, MD & CEO, JM Financial Home Loan.
He believed RBI’s concerns will make lending companies more vigilant in preventing the use of the home loan top ups in consumption and speculative purposes and create a robust top-up loan underwriting mechanism.
Umesh Mohanan, ED & CEO, Indel Money said if one loses money in that speculative trade (unproductive use), it will drastically cut the repayment capacity of the borrower, which will eventually lead to loan default. So, there is no problem in proving top-up loans if it strictly falls within the current loan-to-value ratio.
“Further, the entities should make sure that the top-up loan money be used for productive purposes. In essence, the RBI’s advisory doesn’t restrain banks or NBFCs from providing top-up loans but it reminds them that it must be done with utmost caution and diligence, and should be within the permissible limits set by the RBI,” he added.
