Recognising the undeniably pivotal role of real estate in generating employment and stimulating economic growth in the country, RBI decides to rationalise the risk weightage on Home Loans.
Homebuyers, it’s cheer o’clock for you! RBI decides to rationalise the risk weightage on Home Loans by linking them with Loan to Value ratios for new housing loans sanctioned up to March 31, 2022. The lowering of risk weightage is expected to reduce the requirement of capital provision for banks.
As part of the monetary policy announcement, it is stated that individual housing loans will now attract a rise weightage of 35 percent where the Loan to Value Ratio (LTV) is less than or equal to 80 percent. Whereas, the risk weightage on home loan stands high at 50 percent where the LTV ratio is higher than 80 percent but less than or equal to 90 percent. The measure is expected to stimulate more bank lending to the real estate sector.
Industry luminaries reaffirm RBI’s move
Members of CREDAI believe that this move will lead to a significant boost in the housing demand. Extending the co-lending scheme to Housing Finance Companies and Non-Banking Financial Companies could infuse additional liquidity in the market.
Tanuj Shori, Chief Executive Officer of Square Yards, India’s largest real estate platform, said, “The linking of risk weightage only to Loan to Value (LTV) ratio vis-a-vis the earlier practice of risk weightage with both pricing and LTV augurs well for the sector particularly for high-end properties which have been facing severe downward demand pressures.”
He further added that the rationalisation of associated risk weightage is expected to make the High-Value Loans cheaper. Moreover, the increase in retail exposure from ₹5 Crore to ₹7.5 Crore is going to help individuals, small businesses, and largely the real estate sector.
The move by RBI comes across as the nudge in the right direction to boost the realty demand. Experts believe that the changed risk weight structure is good for Housing Finance Companies as now they can extend large ticket loans on a low LTV ratio. It won’t be wrong to say – the move rings in early Diwali celebrations for high-value loan borrowers as there had been a high-risk weightage on such loans.
