Banks seek lower risk weight on home loans

Banks have requested the Reserve Bank of India (RBI) to bring down the risk weight on housing loans to 35 per cent for loans up to Rs 30 lakh. In addition, bankers want loans up to Rs 30 lakh to be treated as priority sector lending as against Rs 20 lakh currently.

At present, the risk weight on housing loans up to Rs 30 lakh is 50 per cent, while for more than Rs 30 lakh, it is 100 per cent if the loan to value (LTV) ratio is not more than 75 per cent. In case LTV is more than 75 per cent, the risk weight increases to 100 per cent.

A reduction in risk weight will help lower interest rates on home loans up to Rs 30 lakh.

At a pre-policy meeting with central bank officials on Monday, bankers said the relaxation would help banks conserve capital since most of their home loans were from middle- and low-income segments where the disbursement amount was less than Rs 30 lakh.

Bankers pointed out there was also an anomaly in classification of home loans, as those below Rs 20 lakh fell under priority sector lending — a status which is not available for loans between Rs 20 lakh and Rs 30 lakh.

“We have sought bringing down the risk weight on loans up to Rs 30 lakh to 35 per cent, in line with the Basel-II recommendation, and loans up to Rs 30 lakh to be treated as priority sector lending,” a banker said on condition of anonymity.

Bankers have also requested the central bank to exempt refinance from India Infrastructure Finance Co from the mandatory statutory liquidity ratio. Earlier, a request from banks to keep money raised through tax-free bonds for infrastructure funding out of the cash reserve ratio and the statutory liquidity ratio fell flat with the regulator.

Banks have also requested the government to set up a credit guarantee fund for education loans and sought the central bank’s support on the issue. Education loans, mainly to students going abroad, are likely to be under pressure as job market conditions in developed markets are yet to pick up.