The Reserve Bank’s move to rationalise risk weightage on home loans and link it only to loan-to-value (LTV) ratios for new sanctions up to March 2022 is expected to make more credit available to borrowers. It will also bring down cost of funds to buyers, and improve demand for homes, said developers and consultants.
The RBI also hiked the single-party exposure limit for loans to retail and small business loans from Rs 5 crore to Rs 7.5 crore.
Home loans will now attract a risk weight of 35 per cent where LTV is less than or equal to 80 per cent, and a risk weight of 50 per cent where LTV is more than 80 per cent but less than or equal to 90 per cent. Until now risk weight was linked to both size of home loans and LTV ratios.
Dinesh Khara, chairman of State Bank of India, said the decision to increase the limit for risk weights for the retail portfolio and linking housing loan risk weights to LTV ratio were policy innovations. They will please the markets and nudge the term structure of rates lower, he said.
“This step would particularly benefit borrowers of higher-value loans. It would ensure that more credit is available to borrowers,” said Niranjan Hiranandani, managing director (MD) of Hiranandani Communities, s and president of National Real Estate Development Council.
Kamal Khetan, chairman and MD, Sunteck Realty, said: “The measure would provide a boost to the ongoing projects and inventory pick up for luxury developers. Homebuyers across all price-points will be able to access more capital with ease.” Khetan said he expected RBI to extend the measure beyond March 2022 in the coming days.
Anuj Puri, chairman, Anarock Property Consultants, said the move would encourage banks to lend more to individual homebuyers without feeling the stress on their balance sheets. He said lenders had been reluctant to lend owing to risks amidst the pandemic, while buyers had remained financially stressed.
Anurag Mathur, chief executive officer, Savills India, said housing loans would get more affordable, thereby benefiting the homebuyers in this sluggish market. “In fact, home loan EMIs are at an all-time low and reduction in stamp duties across major cities augurs well for the segment.”
Housing finance firms echo the sentiments of developers. “Lenders will offer differential interest based on LTV as their capital requirement will be lower with low risk weight on low LTV,” said Deo Shankar Tripathi, MD & CEO, Aadhar Housing Finance. According to Hardayal Prasad, MD & CEO, PNB Housing Finance, this would also lead to desired recovery of the construction sector, which has a very important role to play in creating employment and growth.