Housing sector gets leg-up as RBI to lower minimum risk weight

Banks will be able to free more funds to lend for affordable housing as the Reserve Bank today proposed to lower the minimum risk weight on housing loans from the current 50%.

"With a view to improve affordability of low-cost housing for economically weaker sections and low income groups and giving a fillip to Housing for All, while being cognizant of prudential concerns, it is proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans," the RBI said.

The minimum risk weight applicable on individual housing loans is 50%, at present.

Detailed guidelines in this regard are being issued separately, the RBI said in its Fourth Bimonthly Monetary Policy statement.

"The RBI's proposal to reduce the minimum risk weightage on individual housing loans for low-cost homes will also help revive sales," said Property consultant CBRE South Asia Chairman and MD Anshuman Magazine said.

JLL india Chairman and Country Head Anuj Puri said for the affordable housing sector, "the outlook is nevertheless bright, since the RBI governor has made provisions for lending to this sector to become less stringent and broader in scope".

“We welcome the Central Bank’s policy move of reducing the Repo Rate by 50 basis points; the Governor deserves a pat on his back. At the outset, this rate cut will lead to a long and sustained improvement of the market sentiments through higher consumer spending and easy availability of loans to both consumer as well corporate. This is great news for the real estate sector as the rate cut would also lead to a significant reduction in home loan rates thereby reducing EMIs of home buyers," said Kamal Khetan, CMD, Sunteck Realty.

Lowering of minimum risk weight means that banks will have to set aside less capital for affordable housing loans leading to availability of more funds for the segment.

Meanwhile, real estate developers have hailed the RBI's decision to cut key lending rate by 0.5%.