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NHB to soon abolish pre-payment penalty on home loans

NHB, which regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and Dewan Housing Finance, said that it would soon issue a circular for doing away with pre-payment charges levied by housing finance companies

New Delhi: In a big relief to home loan borrowers from housing finance companies, housing regulator National Housing Bank (NHB) on Monday said it will soon come out with a directive to abolish penalty on pre-payment of floating loans, reports PTI.

“We will soon issue a circular for doing away with pre-payment charges levied by housing finance companies,” NHB chairman and managing director RV Verma said after announcing 2010-11 financial numbers here.

National Housing Bank (NHB) regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and Dewan Housing Finance.

The housing finance companies should not levy any pre-payment charges on floating loans, he said.

If pre-closure of housing loans by the borrowers out of their own sources, then there should not be any penalty, he added.

In a release issued in October 2010, the regulator had said, “The issue of levying pre-payment penalty or pre-payment charges by housing finance companies on pre-closure of housing loans by the borrowers out of their own sources has been considered by the National Housing Bank and it has been decided that housing finance companies should not charge prepayment levy or penalty in such cases.”

Meanwhile, the banking sector regulator Reserve Bank of India (RBI) has also mooted the idea of doing away with the pre-payment charges levied by banks on floating home loan.

At the same time, NHB has tightened norms for housing finance companies (HFCs) with regard to provisioning.

It has raised the provisioning requirement for doubtful assets of up to 100%. At the same time, it directed HFCs, to set aside 0.4% of the total outstanding ‘standard’ loans as a buffer.

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IFCI, LIC, IDFC others allowed to issue tax-saving infra bonds

Besides, IFCI, LIC, IDFC and IIFCL, NBFCs classified as infrastructure finance company by RBI will be able to issue tax-saving bonds. The volume of issuance during the financial year shall be restricted to 25% of the incremental infrastructure investments made by the issuer during 2010-11

New Delhi: With a view to attracting long-term investments for the infrastructure sector, the government has allowed Industrial Finance Corporation of India (IFCI), Life Insurance Corporation of India (LIC), Infrastructure Development Finance Company (IDFC) and India Infrastructure Finance Company (IIFCL) and certain non-banking financial companies (NBFCs) to issue tax-saving bonds during the current fiscal, reports PTI.

“The volume of issuance during the financial year shall be restricted to 25% of the incremental infrastructure investments made by the issuer during 2010-11,” the finance ministry said.

Besides, IFCI, LIC, IDFC and IIFCL, NBFCs classified as infrastructure finance company by RBI will be able to issue tax-saving bonds.

In 2010-11 the government in order to channelise savings for development of infrastructure sector, introduced the concept of long-term tax savings bond.

It provides tax exemption on investments up to Rs20,000 in long-term infrastructure bonds. This is over and above the existing tax saving limit of Rs1 lakh.

The finance ministry further said that infrastructure bonds should be of 10 years with a minimum lock-in of five years.

After the expiry of five years, the investors would have the option to either sell it in secondary market or seek redemption.

Earlier, the government had announced relaxation of norms for foreign institutional investment (FII) investment in infrastructure sector, besides allowing corporates to raise yuan-linked external commercial borrowings (equal to $1 billion).

The government proposes to double investment in infrastructure to $1 trillion during the 12th Five Year Plan (2012-17).

Last fiscal a host of companies like IFCI, REC and IDFC had raised about Rs8,000 crore through issue of tax-savings infra bonds.

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COMMENTS

B Rajaram

5 years ago

When can our government can think of numbers like Rs 5 lacs instead of Rs 20,000 etc. What does the government lose if Tax Free bonds for infrastructure bonds are taken by individuals with their retirement funds instead of earning interest may as well do so in these 5 year bonds. The kind of fund mobilisation needed demands thinking in a more relaxed manner than getting stuck in a couple of ten thousand, I believe.

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