As per the new circular, the risk weight for loans of up to Rs 30 lakh, where a buyer avails of loans between 80-90 per cent of the property value shall be 50 per cent, while that for loans where buyer avails of loan up to or equal to 80 per cent shall be 35 per cent.
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In July 2014, RBI had made home loans up to Rs 50 lakh in metros and Rs 40 lakh in non-metros, given by banks from the proceeds of long-term bonds (of minimum seven years maturity) qualified as affordable housing loans.
For property cost between Rs 3 million and Rs 7.5 million, the central bank has set maximum home loan limit at 80%.
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.
“With a view to improving “affordability of low-cost housing” for economically weaker sections and low-income groups and giving 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 collateralized individual housing loans”, the central bank in its monetary policy statement on 29 September.
RBI’s move to lower loan-to-value ratios and risk weights for individual housing loans can help bring down interest rates on home loans by another 25-30 basis points over the next few months, says a report. However, this may lead to “lower capital in relation to (higher) risk” in the affordable housing segment.
Lower risk weight means that the capital costs will come down as the banks will have to provision lesser capital.
However, the risk weight for commercial real estate has been left unchanged at 100 per cent.
The move now is the last in a series of measures the RBI has initiated to boost the affordable housing sector. “As prices of real estate have gone up since the time they had introduced that 90 per cent LTV for Rs20 lakh loans”. Many believe that the step by the central bank would also improve customer confidence and provide a trigger to improve the overall sentiment. The risk weight for loans between Rs. 30 lakh and Rs. 75 lakh, which have an LTV of up to 75%, has also been reduced marginally.
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He hopes that sales will rise in smaller cities where apartments are available at below Rs 30 lakh. This wasn’t there in the past. Unlike in the past, now there’s an additional incentive to provide higher down payment to bank while getting the loan sanctioned.
