Letters: Policy reactions II

The Reserve Bank of India’s second quarter monetary policy review has not sprung any surprises. There are three policy measures on home loans. The RBI governor has increased the risk weight for residential housing loans of Rs 75 lakh and above from 100 basis points to 125 basis points, irrespective of loan-to-value (LTV) ratio.

This may not make a big dent in the banks’ profitability, since the average home loan for most of the banks is much lower than Rs 75 lakh. With the property market heating up and real estate prices rising sharply in the last one year, it would have made sense to contain inflationary pressures by increasing the risk weight for loans to commercial property and real estate builders.

Moreover, the RBI has come down heavily on teaser loans, which were primarily responsible for the housing crisis in the US. The central bank has repeatedly sent warning signals to banks to desist from such schemes the long-term implication of which may not be understood by most borrowers. Also, one should welcome the minimum LTV, since it would establish the genuineness of the borrower in taking a loan by putting his/her own stake of at least 20 per cent.

S Ravindranath, Chennai