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This measure is expected to give a fillip to the real estate sector: RBI
This measure is expected to give a fillip to the real estate sector: RBI

RBI rejigs home loan rules to boost real estate sector

  • RBI has decided to rationalise the risk weights on home loans and link them to LTV ratios only
  • This will be applicable on all new housing loans sanctioned up to March 31, 2022

The RBI today rejigged rules for new home loans to boost the real estate sector. Under the current regulations, differential risk weights are applicable to individual home loans, based on the size of the loan as well as the loan-to-value ratio (LTV).

"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.

This measure is expected to give a fillip to the real estate sector, he said.

This move will likely make more credit available to borrowers, particularly for the higher value loans.

LTV means how much the value of the the property a bank can lend to a borrower. If risk weights rise, a bank has to make more provisions and thus the banks’ ability to lend gets restricted.

"Measures like rationalisation of risk weights to all new housing loans until March 2022 would give a fillip to housing loan growth. The RBI has also extended the scheme for co-lending to all NBFCs and HFCs which will ease credit availability for the real estate sector. Broadly these are positive and welcome steps by the RBI," said Shishir Baijal, Chairman & Managing Director, Knight Frank India.

The Reserve Bank of India (RBI) left key interest rates unchanged todayas widely expected, while retaining an accommodative monetary policy stance to support the coronavirus-hit economy.

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