The Reserve Bank of India (RBI) has made it clear to banks that the LTV (loan to value) ratio in respect of housing loans should not exceed 80 per cent. For smaller value housing loans, however, (that is, loans below Rs. 20 lakh, which are classified as priority sector advances) the LTV ratio should not exceed 90 per cent. In a communication the RBI said, “it has been brought to our notice that banks adopt different practices for deciding the value of the house property while sanctioning housing loans.'' Some banks included stamp duty, registration and other documentation charges in the cost of the house property, it said.
“This overstates the realisable value of the property as stamp duty, registration and other documentation charges are not realisable, and, consequently, the margin stipulated gets diluted,'' the apex bank pointed out. The RBI directed the banks not to include these charges in the cost of the housing property they financed so that the effectiveness of LTV norms was not diluted.