Rating agency Moody’s
on Thursday said that the Reserve Bank of India’s (RBI) move to relax regulatory norms for housing finance
might increase risks for banks.
The move is credit-negative, meaning their rating could be lowered and getting loans would be difficult.
On June 7, the RBI
lowered the risk weights
and standard asset provisioning for housing loans in select loan-size categories.
The lower capital requirements will weaken banks’ protection against the housing sector, which has grown rapidly in recent years, and will encourage greater lending.
warned that this growth was occurring because non-bank finance companies (NBFCs) were increasingly targeting the home-loan
segment, posing greater downside risks if there was a correction in property prices.
The RBI’s notification affects the risk weights
of newly originated housing loans in two main categories. For housing loans of more than Rs 75 lakh, the risk weight will fall to 50 per cent from 75 per cent. And for housing loans of Rs 30-75 lakh, the risk weights
will decline to 35 per cent from 50 per cent.
At the same time, the RBI
has removed the previous distinction of risk weights
based on loan-to-value ratios for loans in the same category.
also has lowered the standard asset provisioning requirement to 25 basis points from 40. There is no change to the risk weights
for housing loans of up to Rs 30 lakh.
said over the next 12-18 months, overall credit growth would remain muted, given banks’ weak balance sheets amid continued asset quality deterioration. At the end of March, annual bank credit growth was 7.6 per cent, down from 10.2 per cent the previous year.
Although lower risk weights
would boost sluggish credit growth while limiting the effect on banks’ capital position, the competition for housing loans has significantly increased among banks and NBFCs. Since 2015, the housing loan
book has grown at a substantially higher rate than overall bank credit growth.
In the year ended March 2015, the housing finance
portfolio grew by 16.7 per cent, while overall loan
growth was 7.8 per cent. And during the years FY16 and FY17, the housing finance
portfolio rose by 18.8 per cent and 15.2, while overall bank credit expanded by 10.2 per cent and 7.6 per cent, respectively, Moody’s