Banks get stingy on home loans

Irene D'Souza's (name changed) broker had got her a home loan of Rs 18 lakh approved from ICICI Bank. However, when she went for the cheque, she was told that only Rs 9.53 lakh would be disbursed.

This is in spite of her producing all the supporting documents of income. She has now approached another bank, which has said it will sanction Rs 16 lakh, but the broker has to stand as a guarantor.

D'Souza's is not an isolated case. Direct selling agents (DSAs) of banks said that almost all banks are becoming stricter on sanctioning home loans. "We have been specifically asked by banks to reduce the loan amount," said the head of a DSA.

And banks are using various methods to do it. One such method is reducing the loan-to-value (LTV) ratio in an indirect manner. That is, if the house costs Rs 20 lakh, normally the bank provides 80 to 85 per cent of the cost of the house, which would be to the tune of Rs 18 lakh.

However, most banks are now valuing the house much lower so that though the loan-to-value stays same, the amount disbursed is lower.

For instance, if the same home is valued at say, Rs 15 lakh, the bank disburses around Rs 12 lakh. Effectively it means that the bank has disbursed only 60 per cent, instead of the 80 per cent.

Said Rajeev Sabharwal, head, retail sales, ICICI Bank, "We have not changed any policies on the LTV to give us any extra cushion, but sometimes the valuation of a property genuinely goes down."

According to him, officers go and check the prices of the area before sanctioning the loan. Sources said that the legal and technical teams that visit the site before the loan sanction have been asked to be stricter.

In fact, some banks have even started using the "Ready Reckoner" issued by the government that gives the price of a certain area, based on the stamp duty paid by property buyers in that area.

Said KVS Manian group head, retail liabilities, Kotak Mahindra Bank, "All banks are bringing down their exposure in overheated areas. Earlier, banks were willing to aggressively finance even up to 95 per cent, now it is down to 75-80 per cent."

Besides the above, there are some other measures as well that banks are following stringently. For instance, if there is a cash down payment through a personal loan from a relative, they are insisting on the bank statements of the relative.

"Sometimes, buyers take personal loans to fund the initial down payment, thereby making it difficult for him to service all kinds of loans," added Manian.

Also, they are aggressive going through the financial details of the customers. All indications that life is going to get tougher for potential home loan borrowers.