The central bank has fixed the debt service to gross income ratio for individual borrowers for non-commercial loans.
Issuing a circular today to the banks and financial institutions (BFIs), the central bank has fixed 50 per cent of debt service to gross income ratio for personal loans, housing loans and hire purchase loans.
According to the circular, the BFIs must now factor in regular income of borrowers, while floating personal-type loans, housing loans and hire purchase loans. “A BFI will have to float loan amount within a limit that does not exceed the borrower's 50 per cent of gross income for non-commercial loans like personal loans, hire purchase financing and home loans.”
Though BFIs also consider the income source of their borrowers to ascertain repayment capacity while processing loan applications, the value and quality of collateral has been the major factor that forms the basis of loan disbursement decision. But the new rule will bars banking institution to float loans whose repayment installment amount is higher than the borrower's 50 per cent gross income, according to the bankers. “The borrowers, who want to buy home or car from loan must have to present their certificate of income along with tax clearance certificate to the BFIs,” the bankers said, adding that a borrower must have a gross salary of Rs 50,000 per month, otherwise the one will not be able to get home loan with monthly installment of more than Rs 25,000 per month, irrespective of the value of the collateral. Though, the banks have their own rule while considering the regular income for such loans, the central bank’s new move made them to fix the maximum ratio will restrict them to float loans whose installment does not cross the limit. The central bank circular reads that if any bank floats loans higher than the ratio, it must classify such loan as loans under 'watch list' and must provision 5 per cent of such loan as losses.
As of mid-November, the BFIs have floated Rs 248.4 billion residential personal home loans – up to Rs 15 million each – and Rs 182.94 billion hire purchase loans, according to the central bank data.
Issuing a circular today to the banks and financial institutions (BFIs), the central bank has fixed 50 per cent of debt service to gross income ratio for personal loans, housing loans and hire purchase loans.
According to the circular, the BFIs must now factor in regular income of borrowers, while floating personal-type loans, housing loans and hire purchase loans. “A BFI will have to float loan amount within a limit that does not exceed the borrower's 50 per cent of gross income for non-commercial loans like personal loans, hire purchase financing and home loans.”
Though BFIs also consider the income source of their borrowers to ascertain repayment capacity while processing loan applications, the value and quality of collateral has been the major factor that forms the basis of loan disbursement decision. But the new rule will bars banking institution to float loans whose repayment installment amount is higher than the borrower's 50 per cent gross income, according to the bankers. “The borrowers, who want to buy home or car from loan must have to present their certificate of income along with tax clearance certificate to the BFIs,” the bankers said, adding that a borrower must have a gross salary of Rs 50,000 per month, otherwise the one will not be able to get home loan with monthly installment of more than Rs 25,000 per month, irrespective of the value of the collateral. Though, the banks have their own rule while considering the regular income for such loans, the central bank’s new move made them to fix the maximum ratio will restrict them to float loans whose installment does not cross the limit. The central bank circular reads that if any bank floats loans higher than the ratio, it must classify such loan as loans under 'watch list' and must provision 5 per cent of such loan as losses.
As of mid-November, the BFIs have floated Rs 248.4 billion residential personal home loans – up to Rs 15 million each – and Rs 182.94 billion hire purchase loans, according to the central bank data.
No comments:
Post a Comment