The Home Loan Deposit

The Reserve Bank of India (RBI) has decided to encourage banks and individuals to be actively involved in home loan deposits, a savings product that will help showcase the repaying ability of customers seeking to borrow money to buy a house.

The RBI feels that there is a felt need for financial innovation with respect to loan products and one such product could be savings-induced home loan or a home loan deposit.

The willing customer will be induced to generate a savings balance by way of monthly or periodic deposits. This will enable the creation of a track record for repayment of future home loan products. Once a customer reaches a threshold balance, financial institutions will consider sanctioning a housing loan. The balance in the product would act as a collateral or margin. The amount deposited every month would act as the basis of assessing repayment capacity of customers for calculating their monthly repayments.

Such a product will aid the Indian government’s efforts to promote affordable housing. The government has already laid out a plan to create 100 smart cities with the aim of “housing for all by 2020“ while reducing interest rates on home loans. This product may help lower interest rates as well, with better appraisal of potential borrowers.