With a concern of churning their portfolio, several financial lenders pushed the housing finance regulator for not introducing a two or three-year lock-in period on home loan balance transfers. These lenders want restriction on such a facility in the initial years of the loan terms. Speaking to Indian Express, a Finance Ministry official said, “National Housing Bank, the sectoral regulator, is currently engaged in discussions with home finance companies on the issue.” Over the last six months, the home loan industry has seen a significant drop of 120 basis points and this is why many customers now want to transfer their outstanding principal to competing lenders of the sector as they offer the amount at lower rates.
Indian Express sources in the industry confirmed that currently the housing finance companies and the NHB are undergoing some crucial discussions for introducing a lock-in period of minimum three years. However, the proposal would not call for such restriction if customers want to make prepayment through own source of funds. As the move would benefit only the agents and brokers of the industry who can earn fee on the same, several financial institutions have not favoured the decision. The lending finance companies who are against the move have said that the decision is like going back to reintroducing prepayment for customers which would surely lead the market to inefficiency.
Speaking about the same with Indian Express, a leading finance company said, “Before the prepayment penalty was removed, the market was inefficient and lacked transparency and customers did not benefit from a decline in interest rates in the market. However, the removal of prepayment penalty (on prepayment through own money or balance transfer) forced all players to pass on the benefits to their existing customers in a more efficient manner. Discouraging balance transfer will be like re-imposing prepayment penalty.”
However, there are some who have even backed the move. Terming the restriction important, a senior official from another leading housing finance company said, “Balance transfers in quick time is an unproductive aspect of the industry. While it does not lead to an increase in the size of loan book for the industry, it only ends up benefitting the agents and brokers who earn fee on such churns.”
As the banking industry struggling to stablise the gross credit growth from past 8 months and home loan market continues to be their high growth area, several housing finance industry players feel that banks are pushing for the balance transfers to tap the maximum from the industry.