Go for low EMI, long term: RBI to banks

On the issue of pre-payment penalty, the report recommended that it should be levied only on the outstanding amount on the date of pre-payment and not on the loan amount initially sanctioned.

It also recommended that large institutional investors like pension funds, provident funds, insurance companies, should be encouraged to invest in bonds issued by banks.

The draft said, if necessary, suitable amendments to relevant investment guidelines could be made.

"These institutional investors are ideal match for developing long-term retail mortgage market in India," the report added.

It further suggested that the housing loan regulator NHB may examine the feasibility of extending its refinancing scheme to banks offering long term fixed housing loan products to their customers other than low income households.

"Further, NHB may explore issuing long term housing bonds for channelising the long term resources into the housing sector," the draft said.

The report also noted that lack of liquidity in the Indian securitization market is one of the major factors responsible for lack of popularity for fixed rate loan products.

It also pointed out that substantial increase in EMIs over a period of time has an adverse impact on the repayment capacity of the borrowers which also results in loan

delinquencies.