RBI cuts home loan risk weightage

Banks unlikely to make borrowing cheaper,say already lending at base rates.

Written by Fe Bureau | Mumbai | Published: June 22, 2013 3:32 am

In a move to boost the real estate sector,the Reserve Bank of India on Friday reduced the risk weightage on home loans and residential housing projects.

RBI,on its website,stated the risk weightage on housing loans up to R75 lakh has been brought down to 50% from the earlier requirement of 75%. On home loans above R75 lakh,the risk weight has been brought down to 75% from 100% earlier. “The government had provided additional tax benefits for home loan borrowers in the Budget and RBI has followed it up with these announcements,” said Keki Mistry,vice-chairman & CEO of HDFC Ltd.

The move is intended to help banks price loans better. However,bankers say it will be tough for them to cut home loan rates since they are already being offered at base rates,below which banks are not permitted to lend. In the premium housing segments,rates may see a marginal downtick. “A lot of banks offer home loans up to R75 lakh at base rate. So for banks to lower interest rate on these loans,they would have to first reduce the base rate itself,which seems difficult right now,” said Ram Sangapure,general manager,Central Bank of India.

Recently,Bank of Baroda announced all its home loans will now be offered at 10.25% which is its base rate. Similarly,Indian Overseas Bank confirmed it offers home loans up to R75 lakh at base rate.

SBI is also the leader in the individual home loan segment and offers home loans up to R30 lakh at a rate of 9.95%,marginally higher than base rate of 9.7%. SBI is the only lender to offer home loans at below the 10% mark.

Standard asset provisioning for home loans remains at 0.4% “Our extant instruction requiring additional risk-weight of 25 percentage points (0.25%) for restructured housing loans and higher provisioning of 2% for housing loans extended at teaser rates by banks will continue to remain in force,” RBI stated in its announcement.

Risk weight to residential housing projects under commercial real estate (CRE) too has been brought down to 75% from the previous requirement of 100%. While the standard asset provisioning too stands reduced at 0.75% compared with 1% earlier.

“While the retail housing sector was doing well,this will surely improve the credit flow and affordability. We will also be announcing similar measures for housing finance companies soon,” said RV Verma,chairman,National Housing Board (NHB). NHB is the regulator for housing finance companies.

In its annual monetary policy in May,the RBI had noted that the residential housing complex sector,which is part of CRE,posed lower risk that other components of the sector. In light of this,the RBI has brought down risk weights and provisioning needs associated with residential projects.

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