Published On: Fri, Jun 9th, 2017

Home Loans to Get Cheaper as RBI Eases Norms for Banks

The Reserve Bank of India (RBI) on Wednesday moved to make home loans cheaper by reducing the amount of capital that banks have to set aside against such loans. In doing so, the RBI joins the government in trying to push growth in the residential real estate segment, which, in turn, could provide a boost to the economy.

The RBI has also improved the lendable resources of banks by Rs 50,000 crore by reducing the proportion of deposits that banks have to invest in government bonds.

Considering the importance of the housing sector and given its forward and backward linkages to the economy, it has been decided as a countercyclical measure, to reduce the risk weight on certain categories. It has also been decided to reduce the standard asset provisioning on such loans, the RBI said.

RBI deputy governor Viral Acharya said that this is part of a strategy of targeted intervention to create greater lending capacity for healthier sectors of the economy that have recently slowed down.

Although affordable home loans have been growing at a fast clip, sales of higher-end houses and metro properties had slowed, resulting in they’re in prices being stagnant. Bankers said that reduction in risk weight age in home loans and the lower provisioning requirement will mean that banks will be able to provide more loans with existing capital.

Given that they have deposits of over Rs 100 lakh crore, banks will see their lendable resources increase by Rs 50,000 crore due to the reduction of statutory liquidity ratio (SLR, or the prescribed investment in government bonds) requirement from 20.5% to 20%. The RBI said that the reduction was aimed at allowing banks to comply with international norms on liquidity coverage that come into effect from January 2019.

RBI classifies loans to housing under the priority sector as well as loans of up to Rs 50 lakh to individuals as lending for affordable housing. The definition also covers loans for houses valued up to Rs 65 lakh in the six metros – Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad – and up to Rs 50 lakh in other centers.

The government also gave affordable housing ‘infrastructure’ status in Budget 2017. In addition, it tweaked the area requirements that qualify as affordable housing.

Govind Sankaranarayanan, COO, Tata Capital, said that a significant part of their home loan portfolio lies within the Rs 30-75 lakh segment. The RBI’s decision to reduce the risk weight on housing finance for properties within this category should help reduce the burden borne by financiers through capital costs and lay the platform for a rate cut in the future.

Hiranandani Group founder Niranjan Hiranandani said that the other positive in the policy is that the RBI has allowed loan-to-value ratios of up to 90% for affordable homes. Combined with the 2-4% interest subvention (under the Prime Minister Awas Yojana) and the infrastructure status to housing in the Budget, the sector will get a big boost. He added that this is justified because in India home loans do not pose a systemic risk as almost everyone prepays their home loan and NPAs are the lowest.

The RBI’s norms, together with the government’s push for affordable housing, will be positive for the real estate sector.

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