What changed
Previously, banks had varying practices—some included non-realisable charges like stamp duty and registration in property cost, inflating the value and weakening LTV compliance. Now, RBI explicitly prohibits including these charges, so LTV must be computed only on the realisable property value.
What it means for you
For banks, this tightens LTV compliance, reducing leveraged lending and improving asset quality. Lenders must recalibrate loan sanction processes to exclude these costs, potentially lowering maximum loan amounts for borrowers. It also aligns with RBI's goal to prevent excessive leveraging in housing finance.
What you must do
- Update loan sanction policies to exclude stamp duty, registration, and documentation charges from property cost for LTV calculation.
- Train credit and operations staff on the revised LTV computation method.
- Review existing housing loan portfolios to ensure compliance with the new LTV norms.
- Communicate the change to borrowers during loan application and sanction stages.
Who it affects
All commercial banks (excluding RRBs) offering housing loans, Housing loan borrowers seeking loans above and below Rs. 20 lakh, Credit risk and compliance teams at banks
Does this circular change the existing LTV caps of 80% and 90%?
No, the LTV caps remain unchanged: 80% for loans above Rs. 20 lakh and 90% for loans below Rs. 20 lakh. The circular only clarifies that stamp duty, registration, and documentation charges must be excluded from the property cost when applying these caps.
Why did RBI issue this clarification?
RBI observed that banks were inconsistently including non-realisable charges like stamp duty in property cost, which overstated the property's realisable value and diluted the intended margin. This circular ensures uniform and effective LTV compliance across banks.