News: Housing Fin Regulator May Bring Direct Selling Agents Under Regulatory Ambit-28.06.2017

Housing fin regulator may bring direct selling agents under regulatory ambit

MUMBAI: The housing finance regulator NHB is working on framing rules that will discourage direct selling agents from facilitating loan takeover among mortgage companies in the first year of the loan.

While this could impact consumers' freedom to transfer to another lender within a specified time, the NHB (National Housing Bank) wants to ensure that borrowers do not game the system.

“We are watching the space of balance transfer, where lot of direct selling agents are involved and working on industry-wide data," said Sriram Kalyanaraman, managing director of National Housing Bank. "We will look at whether any mis-selling is happening.

We are looking for inputs from credit bureaus." When the borrower decides to pre-pay a loan, the amount is deducted from the principal outstanding, which in turn reduces EMIs or the remaining tenure of the loan.

Customers started switching to low interest rates, moving from one financial institution to other, after pre-payment charges were abolished. Banks earlier levied a prepayment charge of 2-3 per cent of the out standing loan amount, if one decided to prepay.

However, in 2012, the RBI and NHB asked banks and housing finance companies not to levy prepayment charges on home loans. "The percentage of prepayment of home loans has been on a downward trajectory for the past two years," said Ashwini Kumar Hooda, deputy managing director of Indiabulls Housing Finance. "In FY16, we saw pre-payment of 1.24 per cent per month of our home loans, which further came down to 0.73 per cent per month in FY17."

Banks and financial institutions use direct selling agents to source loan borrowers. Banks are required to prescribe a code of conduct for their DSAs, who are engaged by banks for marketing their products and services.

The DSA model has high in centive but very small salary. DSAs earn incentive for every personal loan, home loan or credit card sourced.