National Housing Bank, the regulator for housing-finance companies, is working on a broad framework with the Insurance Institute of India, which could reduce home loan rates by about half a percent if borrowers opt for an insurance cover, aimed at mitigating default risk as well, said two sources familiar with the matter.
"We are conducting a survey in association with the Insurance Institute of India to assess the feasibility of calamity (property) insurance," Sriram Kalyanaraman, national director & chief executive officer, NHB, told ET confirming the matter.
"We are examining if taking an insurance cover while buying a home loan can lead to lower lending rates," he said.
"An insurance cover should bring down the risk premium, which lenders can pass on to consumers. Going forward, we would come out with a broader framework once the exercise is over."
Now, it is a common practice among housing finance companies to offer property insurance to borrowers taking home loans.
For example, largest mortgage lender Housing Development Finance Corporation (HDFC) offers HDFC Ergo products for nonlife including property insurance. Dewan Housing Finance Cor poration (DHFL) sells Cholamandalam MS General Insurance products through its various branches.
Customers prefer low-cost premium to higher coverage.Normally, property insurance shields potential financial losses arising out of any earthquake, flooding, act of terrorism, accidental firedamages, cyclones, lightning strike, vandalism.
On many occasions, banks and financial institutions compel their customers to buy property insurance, it is alleged.
"Half of the exercise is over.Although it is not yet concluded but the cost benefit could be about half a percent," said an executive associated with the matter.
Karthik Srinivasan, senior VP , ICRA, said: "Such measures, if finalised, should help borrowers.While it would potentially benefit them in improving the risk profile, their loan eligibility too may expands either through lower rates or more credit. The cost of the insurance cover is likely to be borne by borrowers but still, it will benefit home buyers as it could be nominal compared to higher rates."
Transparent and seamless transaction system in property insurance will provide more confidence to consumers, lending institutions like banks, housing finance companies; and insurers, and promote voluntarism on property insurance, NHB said.