In a boost to the real estate and retail segments, the Reserve Bank of India has relaxed the risk weights — the capital required to be set aside — on individual home loans and hiked the loan limit for retail and small business borrowers.
Further, the extension of the co-lending model by the central bank will help expand leverage capacities of housing finance companies (HFCs) and unlock value for them, industry officials said.
The RBI measure will give a boost to housing finance by linking risk weights to loan to value (LTV) rather than the existing loan amount. This is applicable for all new housing loans sanctioned up to March 31, 2022. Loans will have a risk weight of 35 per cent where LTV is less than or equal to 80 per cent, and a risk weight of 50 per cent where LTV is more than 80 per cent but less than or equal to 90 per cent, said Shanti Ekambaram, group president—consumer banking, Kotak Mahindra Bank.
The RBI has also increased the maximum aggregated retail exposure threshold to Rs 7.5 crore from Rs 5 crore in respect of all fresh as well as incremental qualifying exposures to retail and small business borrowers.
Siddhartha Mohanty, MD & CEO of LIC Housing Finance, said regulatory measures such as tweaks on risk weights for home loans aligning it to only the LTVs, increase of exposure limits to individual retail and small business loans, and extension of co-origination models to cover all NBFCs and HFCs will help the sector.
Hardayal Prasad, MD & CEO, PNB Housing Finance, said, “Home loans will become accessible and competitive for the customers. This move (risk weights) by the central bank addresses the urgency required to boost the real estate sector in the country. This will also lead to the desired recovery of the construction sector which has a very important role to play in creating employment and growth.
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