have proposed to the Reserve Bank of India (
should be included in the project cost for home loans, potentially increasing the loan amount for borrowers, ET reported. Currently, these charges are not part of the home loan amount.
Lenders initiated this proposal after internal discussions during a meeting last month. A senior bank executive expressed optimism that the RBI would approve the change, emphasizing that the collateral-backed housing loans wouldn’t pose undue risk. “We are hoping that the RBI will take a favorable decision, and this will increase the loan amount to an individual. Since the housing loan is backed by collateral, it will not add to any undue risk,” the executive was quoted as saying.
If approved, this alteration would impact the loan-to-value (LTV) ratios prescribed by the RBI. For instance, in a Rs 1 crore project with Rs 20 lakh in stamp duty and registration charges, borrowers could be eligible for Rs 75 lakh loans, up from Rs 60 lakh under the existing LTV ratios. The LTV ratio represents the percentage of property value that a lender can lend to a property buyer.
Current guidelines dictate an LTV ratio ranging from 75% to 90% of the property value. However, if the loan amount exceeds Rs 75 lakh, the LTV ratio cannot surpass 75%.
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Approximately a decade ago, the RBI instructed lenders not to incorporate stamp duty or registration charges in the total home value to maintain the effectiveness of loan-to-value norms. Adding such charges overstates the realizable value of the property as stamp duty, registration and other documentation charges are not realizable and, consequently, the stipulated margin gets diluted, according to an RBI circular from February 2012.
The fate of this proposal rests with the regulator, who may impose a limit if deemed necessary, another executive told ET. The executive suggested that stamp duty and other administrative charges should not exceed 10% of the project cost.
In 2015, the RBI allowed banks to include stamp duty and registration charges in the cost of units for home loans up to Rs 10 lakh, with the aim of promoting
for such borrowers.
The RBI’s latest Financial Stability Report shows that the share of residential housing loans in total advances has increased to 14.2% in March 2023 from 8.6% in March 2012. The report also notes that the banking system’s total exposure to real estate stood at 16.5% of total loans in March 2023, with loan defaults of less than 2% due to the secured nature of these loans and loan-to-value ratio regulations.