In a significant relaxation for the housing finance segment, the Reserve Bank of India (RBI) on Thursday increased the amount of loan banks can give against a property purchase — loan-to-value (LTV) — and also reduced the risk weights for home loans.
Banks can now provide home loans up to 90 per cent for properties that cost Rs 30 lakh or below. Earlier, the facility was available only in cases where the cost was up to Rs 20 lakh. This will benefit those home seekers who plan to buy properties in the range of Rs 20-30 lakh. The RBI’s decision comes in the wake of all major banks reducing interest rate on home loans.
In a notification issued on Thursday, the RBI said that in the case of ‘individual housing loans’ falling under the loan category of up to Rs 30 lakh, the LTV ratio is now up to 90 per cent. For properties above Rs 30 lakh and up to Rs 75 lakh, the LTV is up to 80 per cent and those above Rs 75 lakh, the ratio comes in at 75 per cent. It has also modified the provisioning or risk-weights norms for home loans.
Currently, the minimum risk weight applicable on individual housing loans is 50 per cent. With a view to improving “affordability of low cost housing” for economically weaker sections and low income groups and giving a fillip to “housing for all”, the RBI has decided to reduce the risk weights applicable to lower value but well collateralised individual housing loans. Banks are expected to benefit from the latest RBI measure.
Differential home loan rates come under Reserve Bank lens
Mumbai: The decision of some banks — State Bank of India and ICICI Bank — to pass on the full benefit of their base rate cut to existing customers but holding back part of it for new customers has come under the lens of the Reserve Bank of India.
According to sources, dual home loan rates for existing and new customers have not gone down well with the banking regulator. SBI, which was offering home loans to women at base rate (9.7 per cent) and to others at base rate plus 5 basis points till October 3, announced a 20 basis point hike in spread for both women and other customers, with effect from October 5. So while existing customers got full benefit of 40 basis point cut in base rate, the new customers only got 20 basis point benefit. SBI revised the base rate to 9.3 per cent effective October 5.
ICICI Bank too passed the full benefit of its 35 basis point cut in base rate to its existing customers but passed only up to 25 bps to new customers as it raised its spread over the base rate from earlier 15 basis points to 25 basis points. ENS