Skip to main content

RBI cuts risk weight for individual home loans

By
To boost demand for low- cost housing, the Reserve Bank of India (RBI) on Thursday reduced the risk weight for individual housing loans of up to Rs.75 lakh. The minimum risk weight for individual housing loans has been reduced from 50 per cent to 35 per cent.
The risk weight for commercial real estate has been left unchanged at 100 per cent.
For loans of up to Rs.30 lakh, the central bank increased the loan- to- value ( LTV) ratio to 90. LTV is the highest loan amount a bank can disburse, as a proportion of the property price.
Now, banks will have to allocate less capital if risk weights are lower. Most banks have a sizeable portfolio of loans of up to Rs.75 lakh. As capital costs will come down due to lower risk weight, the move is expected to translate into lending rate cuts by banks.
“This will be a boost for the low- ticket housing segment (up to Rs.30 lakh) … increasing the loan- to- value will encourage builders to focus on this segment. With the interest rates coming down, we expect more sanctions and disbursement for banks,” said Rajiv Anand ( group executive and head of retail banking), Axis Bank.
According to the new norms, for loans of up to Rs.30 lakh, the risk weight will be 35 per cent when the LTV is up to 80 per cent. If the LTV for loans is 80- 90 per cent, the risk weight will be 50 per cent.
RBI said earlier, all loans of up to Rs.20 lakh with LTV of 90 per cent had a risk weight of 50 per cent.
In the Rs.30- 75 lakh loan bucket with LTV of 75 per cent, the risk weight will be 35 per cent ( earlier 50 per cent).
For an LTV of 75- 80 per cent, the weight will be unchanged at 50 per cent.
For loans exceeding Rs.75 lakh where loans don’t exceed 75 per cent of the value, the risk weight has been kept unchanged at 75 per cent.
Vibha Batra, senor vicepresident and co- head ( financial sector ratings), Icra, said the credit profile of loans of up to Rs.30 lakh could be riskier and volatile.
“The capital is basically a cushion to absorb unexpected losses. With reduction in risk weights, banks might save on capital but they might also be less prepared to absorb variability in defaults,” Batra said, adding for loans of Rs.30- 75 lakh, the default rates were low.
At its fourth bimonthly review of monetary policy last month, RBI had said risk weights would be reduced to boost affordable housing.
“At present, the minimum risk weight applicable on individual housing loans is 50 per cent. To improve affordability of low- cost housing for economically weaker sections and low- income groups and give a fillip to ‘ housing for all’, while being cognisant of prudential concerns, it is proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans,” the central bank had said.
Business Standard, New Delhi, 9th Oct. 2015

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more