The Reserve Bank of India (RBI) today extended the lower risk weightage on housing loans by one year, saying that it would boost credit flow to the sector. In October 2020, the RBI had decided to rationalise the risk weights by linking them only with LTV (Loan to Value) ratios for all new housing loans sanctioned up to March 31, 2022. Now, this has been extended to March 31, 2023.
This new measure will help improving credit flow to the housing sector, Governor Shaktikanta Das said. With lowering of risk weightage, the requirement of capital provision for banks will come down and ensure more credit is available to borrowers, particularly for high-end properties.
“The RBI vide circular dated October 12, 2020 had rationalised the risk weights for individual housing loans by linking them only with loan to value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022. Recognising the importance of the housing sector, its multiplier effects and its role in supporting the overall credit growth, it has been decided that the risk weights as prescribed in the circular ibid shall continue for all new housing loans sanctioned up to March 31, 2023,” the RBI said in a statement.
This will help banks lend more to individual homebuyers without feeling the stress on their balance sheets, say analysts. In other words, it would help lenders on capital adequacy front and enable them to provide more loans.
According to RBI’s October 2020 circular, housing loans shall attract a risk weight of 35%, if their loan-to-value ratio is at 80% or lower. In cases, where the LTV ratio is higher than 80% but less than or equal to 90%, the risk weights will be at 50%. The requirement of standard asset provision of 0.25% shall continue to apply on all such loans.
In another decision, the RBI today maintained repo rate steady.
“Despite the disruptions from geo- political challenges as well as inflationary pressures, the RBI recognises the need to maintain economic growth momentum. We welcome the RBI’s continued accommodative stance and status quo on REPO rate. For the real estate sector, low interest rates for a long period of time has served as a key catalyst for the resurgence of demand. The status quo on REPO rates will help maintain the current demand levels as interest rate for both homebuyers and developers are likely to be maintained by financial institutions,” said Shishir Baijal, Chairman & Managing Director at Knight Frank India.
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