RBI has brought down the risk weight on housing loans above Rs. 75 lakh to 75% from 125%.

In order to give a fillip to the Indian housing sector at a time when the economy is facing a slowdown, the Reserve Bank of India (RBI) on June 21, 2013 announced 2 measures that will increase flow of bank credit to builders / or developers and individuals home loan buyers.

Further, loans to the these entities could become a tad cheaper & the prices of housing units could come down.

RBI has brought down the risk weight on housing loans above Rs. 75 lakh to  75% from 125%.

According to the RBI, builders / or developers of residential housing projects will now be classified under the commercial real estate-residential housing (CRE - RH) category, attracting lower risk weight & lower standard asset provisioning.
Depending on the risk involved, banks are required to attach weights to loans to arrive at the capital they will have to apportion for making a loan.

They are also required to set aside funds for making provision for standard loans or /  performing loans.

Builders / or developers coming under the CRE - RH category will attract lower risk weight of 75% (as against 100% for CRE projects) & lower standard asset provisioning of 0.75% (1% for CRE projects).

As banks will get capital relief on account of lower risk weight & standard asset provisioning, they will be able to offer loans to builders / or  developers at slightly lower rates. In turn, the builders / or developers are expected to pare the selling price of the homes they build.

Interest rates on home loans could come down marginally as the RBI has revised risk-weights downwards.

As property prices in metros &  their extended suburbs are ruling high, the RBI has brought down the risk weight on housing loans above Rs. 75 lakh to  75% from 125%. Lower risk weight translates into lesser capital that a bank has to set aside for making a housing loan.

For example, if a borrower took a Rs. 10 lakh loan, earlier the bank would have had to set aside Rs. 1,12,500  (at a risk weight of 125%  and capital adequacy of 9%) capital to make the loan. Following the downward revision, the bank will need to set aside only Rs. 67,500 .

The regulator of housing finance companies, the National Housing Bank (NHB), plans to follow in the RBI’s footsteps 7 issue a similar notification within a week.

NHB Chairman and Managing Director mR.  R.V. Verma said, ''RBI measures recognise the fact that quality of loans (assets) in the housing sector is quite good. With cheaper loans, builders / OR developers will be encouraged to bring down the unit price. Individual borrowers will also get some relief on the interest-rate front. The latest RBI measures will give a boost to the economy”


Hindu

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