Risk weightage on home loans cut

The Reserve Bank of India has permitted the banks to reduce the risk weightage for housing loans to individuals from 100 per cent to 50 per cent to increase the credit flow for the sector. This relaxation in weightage would be for the housing loans against the mortgage of residential property, RBI said in a notification to the commercial banks. However, the loans against the security of commercial real estate would continue to attract 100 per cent risk weightage.

The liberalisation in prudential norms for risk weightage would encourage banks to make investments in mortgage backed securities of housing finance companies supervised by National Housing Bank (NHB), it said. The apex bank had made announcement liberalising risk weightage norm in credit and monetary policy for 2002-03. The RBI said the housing finance companies should assign the right, title and interest in securitised housing loans and receivables to special purpose vehicle (SPV) or trust administering mortgage backed securities (MBS).

The right, title and interest of a housing finance company (HFC) in securitised housing loans and receivables should irrevocably be assigned in favour of a special purpose vehicle (SPV) or trust floated to administer MBS, it said.

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MBS underlying the securitised housing loans should beld exclusively for the benefit of the investors by the Special purpose vehicle /trust, RBI added.

The SPV or trust should be entitled to the receivables under the securitised loans with an arrangement for distribution of the same to investors in MBS, it said.