Concerned that excessive lending for home loans and rising realty prices may create a financial crisis, RBI today directed banks to keep more funds aside as a cushion for advances of Rs 75 lakh and above, sending realty stocks into a tailspin.
Realty companies said, however, that supply of houses has to improve to correct the situation and bankers indicated that home loan rates may not go up immediately.
In its quarterly monetary review, the RBI also asked banks to set aside higher amount for the controversial teaser home loans rates as a cushion in case of defaults. Teaser home loans are given at low interest rates for initial years.
The central bank upped risk weight on housing loans of Rs 75 lakh and above to 125 per cent. Thus, banks will now have to keep more money aside for giving housing loans. The current weight ranges from 50-100 per cent.
"It is proposed to increase the risk weight for residential housing loans of Rs 75 lakh and above to 125 per cent," RBI Governor D Subbarao said.
RBI also capped housing loans to 80 per cent of the value of the property. It has been done to dissuade excessive borrowing for housing purposes.
Currently, banks themselves put a cap on housing loans, but there is no ceiling from the RBI side.
"RBI thinks such measures will control prices. In our view, prices can only be controlled by improving the supply," the country's largest realty firm DLF Group Executive Director Rajeev Talwar told PTI.
On BSE, DLF shares plunged 3.28 per cent, the most on Sensex. Realty Index was the biggest loser among the 13 sectoral indices on the Bombay Stock Exchange. Also, mortgage leader HDFC shed 0.93 per cent and ICICI Bank declined 0.04 per cent.
Not ruling out the possibility of default from teaser rates, RBI raised provisioning of these loans to two per cent from the current 0.4 per cent. It also means that banks will have to keep aside more money, while providing teaser rates.
"This practice (teaser home loans) raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective," Subbarao said.
Parsvnath Developers Chairman Pradeep Jain said teaser rates might be removed.
"Home loan rates will not increase because of the RBI's actions," SBI Chairman O P Bhatt said.
"The step indicates cautionary stance of the central bank against any kind of bubble in the realty sector," SMC Wealth Management Service CMD D K Aggarwal said.
IDBI Federal Life Insurance CIO Aneesh Srivastava said "Hike in provisioning requirement for teaser rates from 0.5 per cent to 2 per cent for banks will have some impact on the lenders which have offered such loans."