• Home
• /
• Business

Changes in housing finance norms to help India homeowners

New guidelines to come into effect from January 1, 2024

Question: My wife, working in India, had taken a housing loan from a bank. In case of a couple of instalments, there was delay in repaying the loan. Penal interest has therefore been charged. Is this fair and reasonable?

ANSWER: The Reserve Bank of India has frowned upon this practice of charging penal interest. Under the new guidelines that will come into effect on January 1, 2024, it has been stated that such penal charges are not intended to serve as a revenue enhancement tool. To ensure fair lending practices and protect the interests of consumers, it is stipulated that penal interest should not be levied for not complying with the terms and conditions of a loan. In exceptional cases, based on the bank’s policy, a penalty may be levied but the policy for the same should be disclosed to the borrowers at the time of advancing the loan to ensure transparency. These guidelines will not be applicable to late payment of credit card dues, external commercial borrowings and trade credits.

Question: The bankruptcy law in India has been in operation for the past several years. Has it helped the banks and other creditors in recovering dues from defaulting companies? Is the insolvency process expeditious?

ANSWER: The Insolvency & Bankruptcy Code (IBC) came into force at the end of 2016. According to the data released by the Insolvency & Bankruptcy Board of India, the dues which have been settled upto May 2023 are around Rs8.2 trillion. The amount recovered through the process has been around Rs2.9 trillion. Apart from the recovery of large amount of dues, settlements were reached in around 1,900 cases and were withdrawn from the National Company Law Tribunal.

Therefore, the salutary effect of this law is that hundreds of debtors are resolving the distress in early stages. This is being done when the default is imminent on receipt of notice of repayment from the creditors. In short, many cases are settled with operational creditors even before filing of the application before the NCLT. Therefore, the IBBI has concluded that as a result of this law being in operation, companies have been recapitalised by their promoters before the bankruptcy proceedings are initiated. Promoters are known to clear their dues which have been pending for several years as they do not want their company to change hands. However, delays are occurring. Where the insolvency process has started, the resolution has not been completed within the stipulated period of 270 days. The litigants are partly responsible for the delays as they make interlocutory applications which results in adjournment of hearings, contributing to the delay.

Question: There have been press reports in India that the Indian Government wants to promote manufacture of electric vehicles. Are details of this scheme available?

ANSWER: The scheme for encouraging manufacture of electric vehicles in India has been engaging the attention of the government which has been discussing contentious issues with global players like Tesla and BMW. It is expected that a phased manufacturing plan will be announced in order to incentivise and develop capacity for manufacture of these vehicles both for the domestic and export markets. A graded duty structure may be introduced to boost domestic manufacturing. Tesla has shown keen interest to not only manufacture but to bring in the entire ecosystem to India. It is proposing to set up a factory to manufacture electric vehicles with an annual capacity of around 500,000 units. A phased manufacturing programme will help foreign companies to slowly step up indigenisation.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.