RBI norms on home loans credit negative for banks: Moody’s
Mumbai: The Reserve Bank of India’s (RBI) move to reduce the amount of money that banks have to set aside (as security) on home loans is negative from the perspective of the ratings of lenders, Moody’s Investors Services said in a note on Thursday.
According to the rating agency, the move is credit negative for Indian banks because lower capital requirements will weaken their protection related to the exposure to the housing sector and encourage greater lending.
Last week, the RBI reduced the amount banks have to set aside on home loans to 0.25%, or Rs250 per lakh from 0.4% or Rs400 per lakh previously.
The central bank also reduced the so-called risk weightage on home loans of between Rs30 lakh and Rs75 lakh to 35% from 50%, and over Rs75 lakh to 50% from 75%
“Although lower risk weights would boost sluggish credit growth while limiting the effect on banks’ capital position, we believe competition for housing loans has significantly increased among banks and non-bank finance companies. Since 2015, housing loan growth has been roughly double that of overall bank credit,” said Moody’s.
The rating agency also said that the issue of bad loans in the housing loan segment has remained fairly stable. However, its discussions with banks have confirmed that some areas of weaknesses have emerged in the luxury property segment following demonetisation.
In the absence of demand for big-ticket corporate loans, banks are focusing on retail credit, especially home loans. Banks are also keen on growing their housing loan portfolio to take advantage of incentives offered by the government to home buyers.
The government on 31 December announced the Credit Linked Subsidy Scheme for Middle Income Groups, where interest subsidy of 4% was granted on housing loans of up to Rs9 lakh and 3% on housing loans of up to Rs12 lakh.
Amid greater competition in the home loan market, lenders have been aggressive on cutting interest rates in order to attract customers.
Following the RBI’s decision last week, country’s largest State Bank of India (SBI) became the first bank to reduce home loan rates by 10 basis points to 8.55% from 8.65% earlier. The new rates are effective from 15 June