NHB ups risk weightage for housing finance firms to 75%

The National Housing Bank (NHB) has raised the risk weightage requirement for housing finance companies to 75 per cent from the earlier 50 per cent.

The move brings risk weightage for HFCs in line with those for banks. The new risk weights became effective from the beginning of the month.

"This is a signal for capital cushioning. Most housing finance companies (HFCs) are well-capitalised and may no need to raise additional capital," an NHB executive said.

The move will affect only those HFCs which have a capital adequacy around the prescribed level of 12 per cent. With the new provision in place, HFCs will have to provide Rs 9 on every Rs 100 loan extended by them, against Rs 6 per Rs 100 earlier. HFCs and NHB executives do not see interest rates being affected by the move.

"The cost of funds may increase for some HFCs, but intense competition in the market will mean that interest rates do not rise," a leading HFC executive said.

Higher risk weightage may, however, mean that HFCs maintain a healthy lean to value.

Besides, NHB executives said, HDFC, LIC Housing Finance, Canfin Homes, Gruh Housing, PNB Housing Finance and Dewan Housing Finance, which account for nearly 80 per cent of the Rs 70,000 crore outstanding advances by HFCs, were well capitalised.

"Getting a loan equal to the value of the property or more than the asset value would be difficult. In any case, we want to discourage the trend to ensure better assets quality in the financial system," said an NHB executive.

For banks, the Reserve Bank of India had last year revised the risk weights for housing loans to 75 per cent from 50 per cent to provide additional cushion against housing loan portfolio.