Home loans are likely to get cheaper following the decision of the Reserve Bank of India (RBI) to reduce risk weights and standard assets provisions on housing loans. The RBI’s bi-month monetary policy review will also pave the way for rate reduction in the year’s second half, bankers said. “The large cut in inflation projection by the RBI… is in consonance with ground realities and is likely to create room for rate cuts in the latter half of the year. The decision to reduce the risk weights for home loans over Rs 30 lakh category will release capital for the banking industry and is a positive move,” said Arundhati Bhattacharya, chairman, SBI.
According to Chanda Kochhar, MD and CEO, ICICI Bank, the RBI has again reiterated its focus on resolution of stressed assets which will help to strengthen the banking system and ensure that investments made are optimally utilised. “The SLR cut and reduction in risk weights for housing loans are positive moves that will support bank liquidity and encourage growth in housing loans,” Kochhar said. The RBI reduced the standard assets provisions on individual housing loans to 0.25 per cent and also lowered the risk weights on such lending. “As a countercyclical measure, the LTV (loan to value) ratios, risk weights and standard asset provisioning rate for individual housing loans” have been reviewed from today, the RBI said.
The standard asset provisions, or the amount of money to be set aside for every loan made, has been lowered to 0.25 per cent from the earlier 0.40 per cent, which will help reduce the interest rates on home loans. It also eased the risk weights for certain categories of loans, which will help banks on the capital adequacy front, and enable them to make more loans. The risk weight for individual housing loans above Rs 75 lakh has been cut to 50 per cent from earlier 75 per cent, while for loans Rs 30-75 lakh, a single LTV ratio slab of up to 80 per cent has been introduced with a risk weight of 35 per cent.
The RBI said targeted interventions like reducing standard asset provisions for home loans which will make them cheaper, will help revive the sagging growth rather than rate cuts. “What is likely to work better than interest rate policy in responding to growth challenges is the targeted intervention to create greater lending capacity for the healthier sectors that have recently slowed down,” RBI Deputy Governor Viral Acharya said. Ravindra Prabhakar Marathe, CEO and MD, Bank of Maharashtra, said: “Banks have played their role in effective monetary policy transmission by downward revision of their lending rates… demand for credit is yet to pick up. A deeper analysis of the domestic numbers in wake of predicted normal monsoon, expectations of Fed hike, global cues may determine the course of the RBI action for further monetary easing…”