NHB to decide on pre-payment waiver soon

The National Housing Bank (NHB), regulator in the realty finance sector, is expected to take a decision soon on whether or not there will be a complete waiver of all pre-payment charges on floating-rate home loans.

“The decision will be in the best interest of the borrowers,” NHB chairman and managing director R V Verma told Business Standard on Friday. He did not rule out a difference in view between RBI and the NHB on the matter, hinting at a “more efficient” pricing structure.

Although Verma refused to categorically state if pre-payment charges would be banned, he said, “Borrowers should not be restrained from exercising the option of pre-paying their loans.”

While RBI recently issued an advisory that banks should waive pre-payment charges on floating-rate home loans, a decision is yet to come on this. The RBI decision will be for banks and NHB will decide for housing finance companies. Banks have sought time to respond to this RBI proposal.

Banks and housing finance companies will have to factor in different issues before taking a decision, Verma said. “We are looking at the best possible way to resolve the matter. We are taking stock of the profile of the liabilities involved on the principle of a free market.” For instance, a more efficient pricing model could be something to look at vis-a-vis pre-payment charges, he said, without clearly stating the NHB stand.

Earlier in the day, Housing Development Finance Corporation chairman Deepak Parekh, who was speaking at a roundtable organised by NHB on housing finance issues, opposed the RBI proposal on a complete waiver. Parekh said there could be serious problems if there was one. These charges, he said, were a source of income for the banks, and these should not be stopped.

Parekh urged regulators to realise there may be greater 'substitutional' housing finance and not 'incremental' housing finance taking place, if prepayment charges were completely waived. Verma said it was obvious the lending industry would oppose such a ban.

The charges on pre-payment levied in some banks range between one per cent and five per cent of the loan due. As much as 98 per cent of loans given by banks come in the floating-rate category.

Source: Business Standard