To give the housing
sector a leg up & revive the slowing economy, banks want the risk weights
on housing loans
lowered.
An IBA (Indian Banks’
Association) committee on housing has told the Finance Ministry that if the
prescribed risk weights on housing loans are lowered, banks will have more
funds to lend. This move will not only encourage banks to lend at softer
interest rates but also enable them to give loans up to 85% (Against 75% now)
of the value of a house.
If the risk weight on
a class of assets (or / home loans) is high, banks have to back them up with
more regulatory capital to take care of possible delinquencies. This leads them
to either charge borrowers higher interest rates or limit their exposure to
such assets.
Higher loan-to-value..!
The committee said
that for 85% loan-to-value (LTV) ratio (The amount of housnig loan given by a
bank divided by the value of property) and a Rs. 35.lakh housing loan, the risk
weight should be 50%.
Now, for 75% LTV and
a Rs. 30 lakh loan, the risk weight is 50%.
In the case of
hosuing loans above Rs. 35 lakh & below Rs. 75 lakh (current loan bracket:
Rs. 30 lakh & below Rs. 75 lakh), the committee wants the risk weight
lowered to 50% (Currently 75%).
For loans between Rs.
75 lakh & up to Rs. 1 crore (Rs. 75 lakh & above), the recommended risk
weight is 75% (125%).
The IBA committee has
suggested 100% risk weight for hosuing loans above Rs. 1 crore.
The proposed revised
cut-off at 85 % LTV (excluding stamp duty, registration charges, VAT
(value-added tax) and other documentation charges) coupled with the reduction
in risk weights will help banks lower the interest rate on housing projects.
The Indian real
estate sector can be an engine of growth for the economy as it will create
demand for a host of products, including iron & steel, cement, sanitary
ware, electric cables, etc.
Public Private
Partnership Projects
The committee
recommended that public-private partnership (PPP) projects (residential) undertaken
by real estate developers in partnership with the Government (Central / or State) & its agencies may be considered
for preferential terms, reduced risk weights & rates of interest. Further,
where plot of land is purchased in an auction / or bidding from Government / municipal authorities, finance given by banks
for the project could include the plot of land cost.
Src: The Hindu
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