RBI rationalises risk weights on home loans; big boost for real estate sector

The Reserve Bank of India (RBI) on Friday has announced that it will rationalise the risk weights and link home loans to Loan-to-Value (LTV) ratios for new housing loans sanctioned up to March 31, 2022. Your home loans is all set to become cheaper.

"In recognition of the role of the real estate sector in generating employment and economic activity, it has been decided to rationalise the risk weights and link them to LTV ratios only for all new housing loans sanctioned up to March 31, 2022," the RBI chief Shaktikanta Das said. With lowering of risk weightage, the requirement of capital provision for banks will come down. This move may cheer the homebuyers and give a boost much needed boost to real estate sector ahead of festive season.

“On a positive note, the RBI move to rationalize risk weightage on home loans and linking housing loans risks only to loan-to-value is a welcome move. This announcement, thus, will definitely encourage banks to lend more to individual homebuyers without feeling the stress on their balance sheets. In the current challenging times, banks have been reluctant to lend owing to risks amidst the pandemic while buyers have remained financially stressed,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

CREDAI National President Satish Magar said linking of housing loans to LTV would boost housing demand. "The move to extend co-lending scheme to non-banking financial companies (NBFCs) and housing finance companies (HFCs) may infuse additional liquidity", he said.

LTV ratio is the proportion of the property value that a lender can borrow through a loan. The ratio is fixed for financial institutions. The core purpose of using LTV ratio for a lender is to calculate that they do not lend higher amount than actual price of the property.

Naredco President Niranjan Hiranandani said the RBI's decision to rationalise the risk weights on home loans and link them to LTV ratios will give a boost to the sector.

"Particularly this step would benefit borrowers of higher value loans. It would ensure that more credit is available to borrowers. This move is a much appreciated step recognising the role of the real estate sector in generating employment and economic activity," he added.