No more fine on pre- payment of home loans

HOUSING finance regulator National Housing Bank ( NHB) has directed all housing finance companies ( HFCs) to stop levying penal charges on customers for pre- payment of home loans with immediate effect.

These prepayment penal charges are levied mainly by the private sector banks and housing firms and could be as high as four per cent. The move is expected to provide relief to lakhs of home loan borrowers from HFCs.

The NHB notification asked HFCs not to charge pre- payment levy or penalty for preclosure of housing loans under two situations — pre-closed through any source, where the housing loan is on floating interest rate basis; and loans pre-closed by the borrowers out of their own sources of funds, where the housing loan is on fixed interest rate basis.

The expression 'own sources' for this purpose means any source other than by borrowing from a bank/ HFC/ NBFC and/ or a financial institution, NHB said.

"The move benefits only HFC borrowers at present. But if the move spurs the Reserve Bank of India (RBI) to follow suit, that will relieve all the borrowers, including home and auto loan borrowers, from the prepayment charges," said a personal finance advisor, who wished not to be identified.

"The pre- payment charges were restraining customers from moving around," NHB chairman and managing director ( MD) R. V. Verma said.

"It is very difficult to quantify the loss arising from the new norm. But it can only be a small component," said Darpin Shah, banking analyst, Almondz Global Securities.

However, HFCs are likely to feel more punch in the notification that seeks to maintain uniformity in rates between old and new customers." Charging of higher interest rate to the old customers against the new customers puts them ( the former) at a great disadvantage, besides being a discriminatory practice. For the growth of a healthy and sound housing finance system, it is considered necessary that pricing of the products by the lending institutions are transparent, non- discriminatory and objective," NHB said.

Typically banks and HFCs charge higher interest rate to old clients in order to attract new customers.

Already, HFCs are crying foul over the NHB moves and are seeking a level playing field with banks, which are not barred from levying pre- payment charges. " The impact of these norms will be limited if they are implemented across the financial sector. Otherwise, it will be discriminatory," said an HFC source.

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RESERVE BANK OF INDIA (RBI) INCREASE THE REPO RATE BY 25 BPS

Bangalore: The Reserve Bank of India hiked repo rates by 25 bps as expected by market experts. In its policy it indicated that the global economic situation has worsened and it has raised serious concerns. RBI added that the rise in petrol prices will have a direct effect on the WPI numbers.

Mr. Dipen Shah, Head-Fundamental Research, Kotak Securities said:

"The monetary policy is exactly in line with our expectations. The commentary is suggesting that, while the RBI has moderated its stance from the previous policy, it has not notified  that rate hikes will stop. The markets were volatile around this important, as always, but remained range bound and also maintained the gains of the previous couple of sessions.

Over the past few weeks, market remained largely Range limited   . Global  concerns and a lower — than — expected IIP number weighed on the markets. Our markets have outperformed the global peers in the past few trading sessions on hopes of peeking out of interest rate cycle and initiation of reforms. Efforts to stabilize the European economy also had a positive impact on sentiments.

Over the next few days, markets will continuously watch the developments in Europe and also in US, where the Federal Reserve meeting will be very important. Crude prices have remained buoyant, which is a point of concern. Any developments on the reforms front will be a positive for the markets. We continue to recommend a stock specific approach with a medium — to — long term perspective."

Though the RBI has raised interest rates 11 times since March 2010 to check the rate of price rise, inflation has remained much above the central bank's comfort level of 5-6 per cent and threatens to cross 10 per cent.RBI added in its policy statement that it would be  very difficult to stop this cycle at this point given the high inflationary pressures.

Experts were divided if another rate hike will have any bearing on inflation because of the upward revision in petrol prices - the third this year - effected on Thursday. Many have started questioning the efficacy of the series of the rate hikes. That's because despite 11 hikes in the last 18 months, inflation continues to be above the comfort levels of 5-6 per cent. Also another rate hike might slow down the economy which already saw a steep fall in its IIP numbers.Industrial growth, measured by the IIP, plunged to 21-month low of 3.3 per cent in July.

Finance minister Pranab Mukherjee said on Thursday that inflation may now have peaked and "we should see a gradual moderation in monthly headline inflation". But it doesn't look that considering fuel prices have been increased.

Experts hope that inflation and high commodity prices could ease in coming months as global growth concerns intensify and domestic demand moderates. The government expects the economy to grow by around 8.5% while the central bank has forecast near eight% growth for the fiscal year to March 2012.

The RBI expects inflation to moderate to 7.0% by March.

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