Lower Lock in period in Insurance

Insurance regulator IRDA on Tuesday said that all universal life products, a new kind of insurance which entered India recently and gives greater flexibility to customers, will not have any unit-linked component in them.

IRDA also said that from now, all such products will be named variable insurance products (VIPs) and have a lock-in period of at least three years.

The regulator prescribed that all VIPs should provide death benefits equal to the guaranteed sum assured plus the balance in the policy account while the maturity benefit should equal the balance in the policy account together with a terminal bonus, if any, as applicable. It also said that the sum assured under these policies should be at least ten times the annual premium.

As of now, no group insurance is allowed by IRDA to operate under these policies. Single premium or limited premium structures are also not be allowed for VIPs.

Specifiying on the cost structure, IRDA said that the maximum expense, including commission, should not be more than 27.5% of the premium, while for the second and the third year, this will be capped at 7.5%. From the fourth year onward, the expense is capped at 5%. The regulator also said that the minimum policy and premium payment term shall be five years.

RBI shifts stand and now discourages Housing Loan

Notified in RBI Quarterly Policy dated 2 Nov 10 

Housing Loans by Commercial Banks
Loan to Value Ratio in Housing Loans
104.   At present, there is no regulatory ceiling on the loan to value (LTV) ratio in respect of banks’ housing loan exposures. In order to prevent excessive leveraging, it is proposed:

• that the LTV ratio in respect of housing loans hereafter should not exceed 80 per cent.

Risk Weights on Residential Housing Loans
105.    At present, the risk weights on residential housing loans with LTV ratio up to 75 per cent are 50 per cent for loans up to `30 lakh and 75 per cent for loans above that amount. In case the LTV ratio is more than 75 per cent, the risk weight of all housing loans, irrespective of the amount of loan, is 100 per cent. Accordingly, it is proposed:

• to increase the risk weight for residential housing loans of `75 lakh and above, irrespective of the LTV ratio, to 125 per cent.

Teaser Rates for Housing Loans
106.    It has been observed that some banks are following the practice of sanctioning housing loans at ‘teaser rates’, wherein the loans are offered at a comparatively lower rate of interest in the first few years, after which rates are reset at higher rates. This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective. It has been observed that many banks at the time of initial loan appraisal do not take into account the repaying capacity of the borrower at normal lending rates. In view of the higher risk associated with such loans, it is proposed:

• to increase the standard asset provisioning by commercial banks for all such loans to 2 per cent.