'Banks should look at home loans with lower EMI, longer tenure'

The RBI draft report on home loans also suggested that banks should introduce and popularise long-term fixed rate home loan with a provision of re-fixing the interest rate after 7-10 years

Mumbai: The Reserve Bank of India (RBI) has suggested that banks should look at the possibility of introducing home loans with lower equated monthly instalments (EMIs) and higher repayment period of up to 30 years, reports PTI.


The RBI draft report on home loans has also suggested that banks should introduce and popularise long-term fixed rate home loan with a provision of re-fixing the interest rate after 7-10 years.


These suggestions form a part of a report, 'Feasibility of Introducing More Long-Term Fixed Interest Rate Loan Products by banks. RBI has invited comments from the public on the report by 23rd November.


At present, banks give home loans with a maximum tenure of 15-20 years only.


The report also suggested that banks should popularise fixed deposit schemes for periods of over five years as it would help them procure long-term funds.


The banks, the report added, may also raise funds by floating 30-year bonds on the line of government securities.


The report said "transparency in retail loan products should be appropriately addressed and the customers be educated by lending institutions on the possible impact of rate changes on EMIs to enable borrowers to have better planning with regard to their repayments".


During 1977-2000, fixed rate loan products were popular.


However, post 2000, these products gave place to floating rate loans mainly due to falling interest rates in the early 2000s and significantly higher interest rate on fixed rate loan products in many cases.


The encouragement to fixed rate home loan, it added, is necessary as "customers are not able to understand the intricacies of economic cycles, changes in policy rates, transmission of the same and the consequential sudden increase in EMIs therby exposing themselves to interest rate risk".


SEBI mulls trading pause, annuls flash crash cases

SEBI is looking at introducing a small-duration trading pause and annulment of orders to ring-fence equity investors in a 'flash crash' situation

New Delhi: Capital market regulator Securities and Exchange Board of India (SEBI) is looking at introducing a small-duration trading pause and annulment of orders to ring-fence equity investors in a 'flash crash' situation, reports PTI.
The proposed steps are aimed at containing the impact of any unusually large movements in share prices of big blue-chip stocks and benchmark indices, especially those triggered by the use of high-speed technology that allows execution of multiple trade orders within milli-seconds.
SEBI is of the view that immediate steps are necessary to tackle the challenges posed by possible mis-use of such a technology to manipulate the markets, a senior official said.
The steps being considered by the SEBI include allowing for a 'pause' or temporary halt in trading activities after any occurrence of flash crash-like situations, he added.
Besides, it is also being considered that the already executed buy or sell orders should be annulled if they are found, or even suspected, to have triggered flash crash cases.
A final decision on this matter would be arrived at after taking into account recommendations of SEBI's Technical Advisory Committe, whose members include outside experts. in this regard.
A 'flash crash' in the stock market refers to that situation when a major stock or a benchmark index suddenly falls by a wide margin. The Indian markets witnessed such a case last month when benchmark index Nifty fell by about 900 points within seconds due to erroneous trade orders.
While a 'trading halt' system is already in place in Indian markets, which gets triggered once benchmark indices Sensex and Nifty move at least 10%, there are no such mechanism to tackle any large-scale crash in other indices or individual stocks.
In the past, there have been cases of large-scale sudden plunge in individual share prices, mostly due to high-speed latest technology trading systems, without any similar movements in the two key indices, the official said.
Since the 900-point Nifty flash crash, these issues are being actively discussed within SEBI and with the stock exchanges, among others. SEBI's International Advisory Board also discussed the matter at its meeting earlier this month.
It has been noted that market regulators across the world are currently facing technological challenges posed by High- Frequency Trades and Algo Trading, and a discussing ways in which regulatory authorities and stock exchanges can modify market structures to tackle these issues.
The regulator has also asked the exchange to ensure compliance by the brokers to fair trading regulations and to be extra careful in their trades to avoid erroneous orders that may cause unusual movements in share prices.
Both the leading exchanges, BSE and NSE, are consequently seeking stricter adherence by their member brokers to compliance with the due diligence norms to avoid repeat of a situation similar to Nifty flash crash in October.


Nationalised and foreign banks hit by bad loans: RBI

Reserve Bank says banking system in India is weaker because of rising bad loans as growth has fallen below potential and companies are reeling under obstacles to project clearances

Mumbai: State-run banks and foreign banks were hit by bad loans as their non-performing assets (NPAs) rose in 2011-12, reports PTI quoting the Reserve Bank of India (RBI).
Led by state-run banks and foreign lenders, "the asset quality of the banking system deteriorated significantly in FY12 after a period of sustained improvement," says RBI report on 'Trend and Progress of Banking in 2011-12' released over the weekend.
Non-performing assets of public sector banks rose to Rs1.1 lakh crore in 2012 from Rs52,807 crore in 2003, data from the Reserve Bank of India showed.
The non-performing assets of country's largest lender State Bank of India (SBI) and its associates in 2012 (as of 31st March) were at Rs45,695 crore from Rs16,958 crore in 2003, while that of nationalised banks' were at Rs65,969 crore versus Rs35,849 crore.
Though the report states that there is no systemic risk to the banking system as the fundamentals are robust, the Reserve Bank says the banking system is weaker because of rising bad loans as growth has fallen below potential and companies are reeling under obstacles to project clearances.
"Inadequate credit appraisal during the boom period of 2003-07, coupled with the adverse economic situation in the domestic as well as the external fronts, have resulted in the current increase in NPAs," says the report.
The fall in asset quality was more visible among public sector banks, which saw their bad loans rise on both priority and non-priority loans.
In FY12, gross NPAs of state-run banks rose to 3.3%, higher than the 3.1% at the system-level.
Foreign banks also saw a rise in NPAs, but the report did not specify how much was their NPA level.
But the RBI report said that state-run and foreign lenders' recovery performance was better than their private sector counterparts which relied more on write-offs than recovery.
The report said among banks, new private sector lenders relied more on writing off NPAs as a measure to contain their NPA levels. Loans worth Rs1,800 crore were written off by new private sector banks in FY12, according to the report. 
To strengthen the NPA management framework of the banks, the RBI its in 2012-13 Monetary Policy has advised the banks to put in place a robust mechanism for early detection of signs of distress, and implement measures to preserve the economic value of assets.
To arrest the steep rise in bad loans, the RBI in the report has directed banks to share information on credit exposure among themselves on real-time basis and warned of punitive measures in case of failures, including penalties.
The directive comes at a time when banks are seeing a surge in corporate debt restructuring cases and bad loans.
The RBI on 30th October had asked banks to set aside more money for every standard restructured loan - from 2% in the past to 2.75%.
So far in 2012, the number of loan recasts rose to 101 cases, according to information available with the corporate debt restructuring (CDR) cell.
The CDR cases include the Rs31,000 crore of Air India and Rs1.9 lakh crore of state-run discoms.
Till September, banks restructured loans worth Rs2.5 lakh crore, out of which as much Rs1.6 lakh crore worth loans were restructured under the CDR scheme.
The number of CDR cases since the beginning of this year crossed the century-mark as on 30th September, involving a collective debt amount of close to Rs64,000 crore, as per the data available with the CDR cell of bankers.
Besides, 51 more cases, worth Rs45,000 crore, have been approved for recast at the end of September quarter.
The CDR cell was set in 2001 to help corporates facing financial difficulties due to "factors beyond their control and due to certain internal reasons." 
As per the latest data available with the CDR cell, a total of 466 cases, involving total debt of Rs2.46 lakh crore , have been referred to it since its inception.
During the first half of the fiscal, as many as 74 cases worth about Rs40,000 crore were referred to the CDR cell-the highest ever so far.
In the entire last fiscal, there were 87 CDR cases with an aggregate debt of about Rs68,000 crore referred for CDR.


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