Housing finance stocks in demand

Shares of seven housing finance companies (HFCs) rose 2.15% to 8.25% after the Reserve Bank of India (RBI) decided to extend the scheme of co-lending to all non banking financial companies.

LIC Housing Finance (up 8.25%), GIC Housing Finance (up 7.35%), Repco Home Finance (up 7.33%), Can Fin Homes (up 5.72%), Indiabulls Housing Finance (up 3.29%), PNB Housing Finance (up 3.23%) and Housing Development Finance Corporation (up 2.15%) advanced.

In 2018, the RBI put in place a framework for co-origination of loans by banks and a category of non banking financial companies (NBFCs) for lending to the priority sector, subject to certain conditions.

The arrangement entailed joint contribution of credit at the facility level, by both the lenders as also sharing of risks and rewards between them for ensuring appropriate alignment of respective business objectives.

Based on the feedback received from the stakeholders, to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort, and to improve the flow of credit to the unserved and underserved sector of the economy, it has been decided to extend the scheme to all the NBFCs (including housing finance companies), to make all priority sector loans eligible for the scheme and give greater operational flexibility to the lending institutions, while requiring them to conform to the regulatory guidelines on outsourcing, KYC, etc.

The proposed framework will be called as "co-lending model". The revised guidelines will be issued by end of October 2020.

The Reserve Bank of India has also rationalised the risk weights for all new housing loans sanctioned up to 31 March 2022, in a move to give a fillip to the real estate sector lending.

Currently, differential risk weights are applicable based on the size of the loan as well as the loan to value ratio (LTV). Recognising the criticality of real estate sector in the economic recovery, the RBI has decided, as a countercyclical measure, to rationalise the risk weights by linking them only with LTV ratios.

All individual housing loans, according to the statement of developmental and regulatory measures, shall attract a risk weight of 35%, if their loan-to-value ratio is at 80% or lower.

Further, where the LTV ratio is higher than 80% but less than or equal to 90%, the risk weights will be higher at 50%.

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