Lower risk weight will improve pricing, perception: NHB chief

Will help improve risk perception of real estate sector, will help pricing of loans for project financing of residential properties

The Reserve Bank of India (RBI) had some good news for potential home buyers in its Annual Monetary Policy statement on Friday. The apex bank proposes to introduce a sub-section under commercial real estate (CRE), namely CRE-Residential. This segment is expected to have lower risk weight and provisioning.

R V Verma, chairman and managing director of National Housing Bank – the regulator of housing finance companies – said this move will help in improving the risk perception of the real estate sector and help pricing of loans for project financing of residential properties. “This is a positive signal to the lending industry and help in credit flow into the housing segment,” said Verma. The lower loan rate for financing of such properties, in turn, would help builders reduce the property rate.

RBI, in its annual policy statement said, “It has been generally observed that the residential housing complex sector under the CRE poses lower risk than the other components of the CRE sector.”

According to Verma, there should be two sets of risk weights and provisioning norms – one for properties which have flats costing up to Rs 30 lakh (classified as priority sector loans) and the other above it.

“Having a lower provisioning for loans up to Rs 30 lakh would help in increasing the supply of properties in this segment. Lenders would also be comfortable,” said Verma, adding such lower provisioning should only be extended to properties where all the flats are in the Rs 30-lakh range.

At present, for certain slabs like properties of over Rs 75 lakh, the rates are 125 per cent irrespective of the loan-to-value ratio.  

Besides this, the policy statement also said there was wide variation in the pricing of retail loans, even when the loan was sanctioned on the same day.

“The very wide variation in rates of interest charged by banks on retail loans to different borrowers on the same day cannot possibly be attributed to customers’ risk profiles. Such a practice may be reflective of the opaqueness in the system,” it noted.