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First filter for selection of home loan provider.
Nov 25, 2014 10:55 AM 108637 Views
(Updated May 12, 2015 11:23 PM)

Many borrowers by default(erroneously) assume that all home loan providers fall under direct purview of Reserve Bank of India(RBI). One may ask, how does correctness or otherwise of this assumption matter? Read on, for the answer.


Scheduled and private bank home loan providers(like Axis Bank) are under RBI jurisdiction. Whereas, a significant chunk of housing finance segment is under purview of National Housing Bank(NHB). These are primarily Non-Banking Finance Companies(NBFCs) in housing finace sector, referred as Housing Finance Companies(HFCs). Dealing with RBI governed home loan provider banks vis-a-vis dealing with HFCs governed by NHB are two completely different ball-games; even though NHB itself is under RBI purview.


Though compared to NHB, RBI takes its own time to come up with policy changes beneficial for borrowers; however unlike NHB, RBI does its homework very well prior to issuing policy directives. Therefore its directives are not half-baked, rather they tend to be comprehensive and unambiguous, leaving hardly any Grey area for subjective interpretation by home loan provider banks. Further, unlike NHB, RBI is strict enforcer of its directives, as well as promoter of transparency. Thus it is difficult for home loan provider banks under RBI purview to cheat borrowers. In addition to this, 'RBI ombudsman' is very effective grievance redressal mechanism.


Furthermore, home loan provider banks have an incentive in'continuous' longer-term relationship with borrowers because, they would get business of wealth management / portfolio management, fixed deposits, credit cards, insurance, bill payments, income tax payment, foreign exchange, Gold coins, locker service etc. from same client; over and above home finance business. They know that taking home loan borrower for a ride would result in long-term loss in other portfolios of same client. On the other hand, HFCs have incentive in exploiting existing borrowers as much as possible because




  1. Conditional probability of same borrower applying for / capable of getting sanctioned one more home loan is very low.




  2. Amalgamations among HFCs is order of the day, hence many of them are not even bothered about building brand value. A few of the HFCs enter the market with goal of subsequent acquisition by another HFC, at a premium. For example, in span of about six years, BHW Birla Home Finance Ltd became Deutschepost Home Finance Ltd, later First Blue Home Finance Ltd, and now Dewan Housing Finance Ltd.




  3. Lastly, entry criteria set by RBI for banking license is too stiff, whereas it is relatively easy for HFCs to get license from NHB.






For validation of above proposition, one just needs to compare number of(home finance related litigation) judgements delivered by consumer forums against RBI governed home loan provider banks vis-a-vis HFCs under purview of NHB by consumer forums at the website - https://ncdrc.nic.in/ Here the NHB governed HFCs grab top ranks. One shall also look into(details of) nature of perpetrated illegalities, and kind of bizzare justifications provided in court of law, by some of these HFCs. One of the standard justifications by Dewan Housing Finance Ltd. is: "we are governed by NHB, not RBI; hence prudential norms recommended by RBI are not applicable to us".


Finally, while HDFC Bank, ICICI Bank, PNB, Canara Bank are under RBI purview; HDFC, ICICI Home Finance Co. Ltd, PNB Housing Finance Ltd, Canfin Homes Ltd are under NHB purview. Hence at times, default RBI purview assumption may be counter-productive.


In nut-shell, when one does not have time to explore well-documented judgements at https://ncdrc.nic.in/ website, then one shall simply apply first-filter: choose home loan provider which is under direct RBI purview. It is less likely that one will regret.


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