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Risk weights cut on home loans credit negative for banks: Moody's

RBI lowered risk weight for housing loans above Rs 75 lakh to 50% from earlier 75%

Press Trust of India  |  Mumbai 


The Reserve Bank's recent move to reduce and standard asset provisioning on individual housing loans are credit negative for the banking sector, says a report.

In the second bi-monthly monetary policy review announced on June 7, had reduced the (loan to value) ratios, and standard asset provisioning rate for individual housing loans on the certain category for new customers.

"The RBI's moves are credit negative for because lower capital requirements will weaken banks' protection from the housing sector, which has grown rapidly in recent years, and will encourage greater lending," global rating agency Moody's said in a report here on Thursday.

It said this growth is occurring as non-bank companies increasingly target the home-loan segment, posing greater downside if there is a correction in property prices.

lowered the weight for housing loans above Rs 75 lakh to 50 per cent from the earlier 75 per cent, while for loans between Rs 30 lakh and Rs 75 lakh, the were cut to 35 per cent from 50 per cent.

The standard asset provisions or the amount of money to be set aside for every loan given, on the was lowered to 0.25 per cent from the earlier 0.40 per cent.

The also removed the previous distinction of based on loan-to-value ratios for loans in the same category.

Over the next 12-18 months, the rating agency expects overall system bank credit growth to remain muted given banks' weak balance sheets amid continued asset quality deterioration.

As of March 2017, annual bank credit growth was 7.6 per cent, down from 10.2 per cent the previous year.

"Although lower would boost sluggish credit growth while limiting the effect on banks' capital position, we believe competition for housing loans has significantly increased among and non-bank companies," the report said.

Since 2015, housing loan growth has been roughly double that of overall bank credit.

In 2015, overall bank credit growth was 7.8 per cent while housing credit was at 16.7 per cent. In the year ended March 2017, bank credit grew at 7.6 per cent whereas segment witnessed a 15.2 per cent growth.

First Published: Thu, June 15 2017. 16:24 IST