The Reserve Bank of India (RBI) has called upon banks to bring in more financial innovation into home loan products by linking such loans to deposits. According to R Gandhi, Deputy Governor, RBI, “Savings can be induced to generate savings balance by way of monthly or periodic deposits. This will serve as a track record for future home loan products and once it reaches a certain balance, the financial institution can consider sanctioning the home loan with the balance in the account acting as collateral.”

Gandhi said the RBI will also periodically review the definition of affordable housing, taking inflation into account. Further, he mentioned the need to internalise the credit risk originating in the housing sector, particularly the low-ticket housing segment, through proper insurance schemes for banks and other institutions.

Gandhi asked various stakeholders to ensure timely completion and delivery of projects without escalating the costs. In addition, he highlighted the need to develop an elaborate system for collecting data on real estate and housing activity to facilitate informed policy decisions.

Amid demands from the real estate industry with regard to funding from banks, Gandhi also asked them to moderate their expectations as banks are ultimately the trustees of public money and it needs to be used efficiently for all sectors. On differential licensing, Gandhi said the central bank intends to issue the final guidelines during this financial year after analysing comments and suggestions invited from various stakeholders. Asked if state-owned India Post will apply for a banking licence, he said the Government has to give its approval and only then can it apply to the RBI.

Reserve Bank of India has expressed concern over high exposure of banks to infrastructure and real estate sectors. RBI Deputy Governor R Gandhi cautioned lenders saying they “cannot put all eggs into one basket”. As an alternative, the deputy governor suggested looking at corporate bonds market, which is being encouraged by both the central bank and the government. “Together, the real estate and infrastructure sectors account for 25 per cent of the total credit exposure. We are very much concerned about further exposure by banks into this segment,” Gandhi said while addressing a capital markets summit, organised by industry lobby Ficci here. “Banks cannot put all eggs into one basket. When they have already reached 25 per cent, naturally they will have hesitation to increase it further. One cannot overexpose to one segment or sector,” he told reporters later. Gandhi said that RBI considers real estate as a “sensitive” sector because of asset bubble fears. He said housing credit has grown from Rs 2.60 trillion in FY08 to Rs 5.40 trillion in FY14, while the same to commercial realty has grown from Rs 60,000 crore to Rs 1.54 trillion during the same period. For the infrastructure space, the same has grown from Rs 2.06 trillion in FY08 to Rs 8.40 trillion at the end of FY’14, constituting about 15 per cent of the system. “In terms of proportionate allocation, to expect banking system to be supporting these two sectors much beyond this would be a bit tall. That is why we need to be looking at sources beyond the banking sector,” he said, adding, corporate bonds would be a good alternative which the banks can look at. It can be noted that due to issues like the asset liability mismatches, RBI and policymakers have for long been trying to push alternatives like the corporate bonds to raise long-term funds. Steps to allow banks to issue long-term bonds in July this year were a part of the same design. But so far corporate bond market could not make a mark in the market primarily due to dominance of the government bond market. Meanwhile, Gandhi said the RBI will be coming out with a discussion paper on group exposure limits by banks in November or December. He also said banks have requested for an extension for the practice of restructuring beyond 2015 and the RBI is examining the same. Gandhi said the RBI will be coming out with final guidelines for small banks and payments by end-November and with draft guidelines on ‘on-tap’ licensing after that.