Cooperative Bank Employees’ Federation Urges RBI to Increase Housing Loan Tenure from 15 to 30 Years
The All India Cooperative Bank Employees’ Federation (AICBEF) has requested the Reserve Bank of India (RBI) to revise housing loan guidelines for Rural Cooperative Banks and increase the maximum repayment period from the existing 15 years to 30 years. The Federation said the present 15-year limit results in higher EMIs and makes housing loans difficult to afford for many middle-class borrowers.
What is the Issue with the 15-Year Housing Loan Limit?
Recently, the RBI had released new directions on Credit Facilities for Cooperative Banks. Paragraph 64 of the RBI Directions restricts the repayment period for housing loans to a maximum of 15 years, including the moratorium period. The guidelines also provide that a borrower’s monthly housing loan repayment obligation should normally not exceed 30% of monthly income.
The Federation argued that while these rules are intended to ensure responsible lending and repayment capacity, they could make housing loans less accessible to genuine borrowers.
Understand with Example
If a Rural Cooperative Bank sanctions a ₹50 lakh housing loan, the borrower may have to pay an EMI of nearly ₹50,000 per month, depending on the applicable interest rate. If the EMI has to remain within 30% of the borrower’s monthly income, the borrower would need an income of approximately ₹1.50 lakh per month to become eligible for such a loan.
This could exclude many middle-class salaried employees, professionals, small business owners and self-employed people who may otherwise be capable of repaying the loan if they are given a longer repayment period.
Public and Private Banks Offer Longer Loan Tenure
The important point is that such conditions are generally not applicable to Public Sector Banks, Private Sector Banks and Urban Cooperative Banks, where housing loans are commonly sanctioned with repayment periods of up to 30 years. A longer repayment period reduces the monthly EMI and makes housing loans more affordable for middle-income families. As a result, borrowers may prefer these banks instead of Rural Cooperative Banks.
AICBEF Requests 30-Year Housing Loan Tenure
AICBEF has requested RBI to reconsider the housing loan provisions and increase the maximum repayment tenure for Rural Cooperative Banks from 15 years to 30 years.
It has also requested RBI to provide adequate flexibility to the Boards of Rural Cooperative Banks to decide suitable repayment periods based on the repayment capacity of individual borrowers and the bank’s credit policy.
The Federation said the proposed changes would make housing finance more affordable, improve financial inclusion, strengthen the retail loan business of Rural Cooperative Banks and help them compete with Public Sector Banks, Private Sector Banks and Urban Cooperative Banks.
