Reserve Bank of India tweaks risk weights for housing finance companies

In a relief to housing finance companies, the Reserve Bank of India (RBI) has tweaked the risk weights by capping the same for undisbursed loans at par with that of disbursed loans. This is likely to release capital that was locked for undisbursed loans.

“In order to address a potential anomaly in the computation of risk-weighted assets for undisbursed amounts of housing loans/other loans vis-à-vis that for an equivalent disbursed amount of similar exposures, it has been decided that the risk-weighted assets computed for undisbursed amounts of housing loans/other loans … shall be capped at the risk-weighted asset computed on a notional basis for an equivalent amount of disbursed loans,” the RBI circular said.

Shobhit Agarwal, MD & CEO of ANAROCK Capital, said if the capital that HFCs need to maintain against housing loans is reduced, it can increase their ability to lend.

“As a result, home loans can become more accessible and affordable for buyers, thereby boosting demand in the housing market. With more liquidity available, developers can rationalise available inventory and improve their cash flows,” Agarwal said.

At the same time, the regulator segregated risk weights for standard and stressed commercial real estate - residential buildings.

RBI said the risk weight for Commercial Real Estate – Residential Buildings classified as standard would continue to be 75 per cent.

For exposures under this category, which are not classified as standard, the risk weight shall be 100 per cent.