If the LTV is between 80% and 90%, the risk weight-the capital required to be set aside by banks-attached to such loans will be 50%.
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In a move that could give a few breather to the realty sector and home loan borrowers, the Reserve Bank of India (RBI) has eased risk weights on loans of up to Rs 75 lakh, provided the borrower brings in a bigger contribution towards financing the property. For loans upto Rs 30 lakh with a loan to value ratio of upto 80%, risk weight for calculating capital adequacy ratio will be 35%, down from 50% earlier, for loan to value ratio of between 80 and 90%, the risk weight will be 50%. This will apply for loans of up to Rs 30 lakh, the central bank said in a notification today.
For home loans of up to Rs 30 lakh wherein the LTV ratio is above 80% and of Rs 30-75 lakh where the LTV ratio is above 75% will continue to attract 50% risk weight, the RBI said. “As prices of real estate have gone up since the time they had introduced that 90 per cent LTV for Rs20 lakh loans”.
As per earlier RBI guidelines, home loans for up to 90 per cent of the property value could have been given by banks only for properties of up to Rs 20 lakh.
“If the loan amount does not exceed Rs 30 lakh the buyer can get finance to an extent of 90 per cent of the agreement value”.
Sanjay Dutt, managing director, Cushman and Wakefieldm, said, “Lower risk weight on housing loans from the current 50 per cent would enable banks to free more funds to lend for low-cost housing”. As for variability in asset quality indicators, the gross NPA changed by 110 basis points (bps) in low-income category over one year, the change was only 39 bps for home loans greater than Rs 25 lakh during the same period.
“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”.
The central bank also chose to revise the provisioning or risk weight for loans.
The RBI’s move comes in the wake of a Government plan, called “Housing for All”, to build 20 million houses for the urban poor by 2022, which coincides with 75 years of independence.
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It has been observed that a few lenders have been seeking relaxations from the central bank in light of a slowdown in the real estate sector. Generally, teaser home loans are offered at a fixed low-rate of interest in the initial years and are subsequently adjusted to a higher floating rate for the rest of their tenure.
