In a tight move that will affect the builders, RBI has barred the banks from providing home loans for under-construction flats. Currently they are provided by the banks at the 80:20 ratio.
These loans are given under mortgage systems and not under construction financing.
As construction loans involve greater risks, the banks have to provide greater provisions to the Central Bank making it a tougher task. On the other end, home loans are easier as it requires minimal provisions in comparison to the former loans.
Home loans, being cheaper than the construction loans, builders too prefer it. For them too, home loans are more beneficial as construction loans are charged at higher rates.
With the new RBI policy, the builders will be affected severely forcing them to take out high-rated construction loans for completing their projects.
Sources say that in Mumbai, one fourth of the home loans are provided under the 80:20 scheme.
A bank official said that construction involves higher risk and so they have to convert this risk into profit. He added that the builders are not to be offered loans at the rate which an individual is given home loans.
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