The Reserve Bank of India will extend the directions on maintaining rationalised risk weights against individual home loans.
“Recognising the importance of the housing sector, its multiplier effects and its role in supporting the overall credit growth”, the regulator has decided to extend the guidelines issued in October 2020 till March 31, 2023, it said in a statement on developmental and regulatory policies released along with the monetary policy.
Risk weights against a loan refer to the capital charge against it. Lower risk weights allow banks to extend more loans in that specific sector, as they are less capital-intensive.
Previously, the risk weights were linked to the size of the loan and the loan-to-value ratio. In October, the regulator linked the risk weights against individual home loans only to the loan-to-value ratio. The norms were effective till March 31, 2022.
Individual home loans with a loan-to-value ratio of up to 80% were to carry a risk weight of 35%. For loans with a higher LTV ratio between 80% and 90%, the risk weights assigned were 50%, in October 2020.
Home loans have been one of the highest growth areas for domestic banks. As of February, the outstanding home loans extended by the banking sector stood at Rs 15.78 lakh crore, up 6.7% year-on-year, according to the RBI's monthly credit data.
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