Home Loans To Get Cheaper As RBI Relaxes Norms
To provide a fillip to the housing sector, the Reserve Bank of India (RBI) has relaxed the capital requirement for banks to issue home loans. The RBI has reduced the risk weight on individual housing loans with effect from today. With lower risk weights, a bank has to set aside less capital, thus increasing the lender's ability to lend. According to the RBI's notification, for home loans above Rs 30 lakh and less than Rs 75 lakh, with loan-to-value (LTV) ratio of less that equal to 80 per cent, the risk weightage has been reduced to 35 per cent. LTV ratio is the maximum amount of loan that can be disbursed against the value of a property.
Earlier, home loans (above Rs 30 lakh and less than Rs 75 lakh) with an LTV ratio of less than or equal to 75 per cent had a risk weight of 35 per cent and loans having an LTV of more than 75 per cent and less than equal to 80 per cent had a risk weightage of 50 per cent.
For loans above Rs 75 lakh (with an LTV ratio of up to 75 per cent), the risk weight has been reduced to 50 per cent from 75 per cent earlier.
Bankers welcomed the RBI's move. "The decision to reduce the risk weights for home loans over Rs 30 lakh category will release capital for the banking industry and is a positive move," said SBI chairperson Arundhati Bhattacharya.
Most banks have a sizeable portfolio of home loans of up to Rs 75 lakh, analysts say. As capital costs will come down due to lower risk weight, the RBI's move could translate into lending rate cuts in the future, analysts added.
The banking sub-index of National Stock Exchange-Nifty Bank- rebounded sharply to hit a record high of 23,606 after RBI made this announcement. Meanwhile, RBI has kept the risk-weightage unchanged for home loans up to Rs 30 lakh.
Earlier in the day, RBI kept its key interest rate unchanged at 6.25 percent on Wednesday, as widely expected, while lowering projections for inflation and striking a somewhat less hawkish tone in a policy statement. Analysts say that this could open up room for rate cuts in the future.
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