RBI August policy review: Loan-related stipulations such as LTV, risk weights not being adhered to by certain entities

On the sideline of the monetary policy announcement, the government while putting its focus on the growing loan segment cautioned that there has been a brisk rise at the pace of disbursal of home equity loans of top-up home loans as they are referred to in India. 

"The third issue that is attracting our attention is home equity loans, or top-up housing loans as they are called in India, which have been growing at a brisk pace. Banks and NBFCs have also been offering top-up loans on other collateralised loans like gold loans. It is noticed that the regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds are not being strictlyadhered to by certain entities. I repeat certain entities," said the Governor's statement.

Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes. Banks and NBFCs would, therefore, be well-advised to review such practices and take remedial action, he added.

The issue was pointed out as the Governor believes that even in such stable financial sector conditions, the emphasis cannot shift away from proactive identification of potential risks and challenges, if any.