The RBI has likewise made another significant stride. The differential riks weights are pertinent dependent on the size of the loan as well as the loan to value ratio (LTV). The RBI has defended the risk weights by connecting them just with LTV ratios for all new housing loans sanctioned up to March 31, 2022. Such loans will draw a risk weight of 35 percent where LTV is less than or equivalent to 80 percent, and a risk weight of 50% where LTV is more than 80% however not exactly or equivalent to 90 percent. This measure is expected to give a fillip to bank lending to the real estate sector.
“In order to ensure higher credit growth even to the individuals and small businesses (i.e. with a turnover of up to Rs 50 crore), the limit for a maximum aggregated retail exposure to one counterparty has been increased from Rs 5 Crore to Rs 7.5 Crore. The RBI has also decided to rationalize risk weights of new housing loans till 31st March 2022, a move that is likely to help reduce home loan rates,” says Sameer Kaul – CEO and MD of TrustPlutus Wealth Managers (India).
Rationalizing risk weightage on home loans and linking it to Loan to Value (LTV) ratio will effectively result in higher credit flow to the real estate sector, which is positive news for the sector,” said Dhruv Agarwala, group chief executive officer (CEO) of Housing.com, Makaan.com, and Proptiger.com.
“This move by the central bank addresses the urgency required to boost the real estate sector in the country. Home loans will become accessible and competitive for the customers,” said Hardayal Prasad, MD & CEO, PNB Housing Finance.
What it means for Home Loan Borrowers?
Loan to-Value (LTV) ratio alludes to the proportion of the property value that a moneylender can borrow through a loan. Moneylenders set the LTV ratio for a loan candidate in the wake of figuring in his credit profile and the administrative covers for the concerned loan type by the regulator. For example, if a bank underwrites a home acquisition of Rs. 1 crore wherein a home buyer foots Rs.20 Lacs and the bank contributes Rs. 80 Lacs. At that point, the LTV would be Rs. 80 Lacs (value of the loan) partitioned by Rs.1 crore (cost of the home purchased). Thus, the LTV would be 0.8. On the off chance that the LTV increases, the bank’s danger worsens, clarified Nishant Singh, partner, IndusLaw.
The Central Bank endorsed the riks weightage on a home loan dependent on its size. The bank must keep up 35% of the administrative capital if the loan amount is up to Rs.30 Lacs. In the event that the advance sum is higher than Rs.30 Lacs however doesn’t surpass Rs.75 Lacs, the bank is needed to have the capital provision at half of the loan value. At the point when the loan amount surpasses Rs.75 Lacs, the bank needs the capital arrangement at 75% of the loan amount.
At present, the risk weights are connected to the size of the loan just as the loan to value (LTV) proportion. By eliminating the loan size from the equation the central has allowed banks more room to lend to borrowers for high-value properties.
The risk weightage assigned to LTV will free up banks’ capital for additional lending. It will also help them to bring down the lending rates because they will have spare capital to lend,” explained Anuj Puri, chairman, ANAROCK Property Consultants.
“For the lower loan ticket size, where the bank’s capital requirement may go up depending on the LTV for a specific loan, it will provide better risk coverage to the bank. From the regulatory side, the LTV of a home loan book will reveal its real risk characteristics. Overall, when the home loans’ risk weightage is pegged to the LTV, it will mutually benefit the lenders and the borrowers,” Singh clarified.
“With reduced risk weights for loans above ₹75 lakh, the cost of lending to this customer segment will come down for the lenders as they will have to set aside a lower amount of capital for such loans. Hence, lenders are likely to pass on the benefit to this customer segment by reducing the lending rates for loans above ₹75 lakh,” said Ratan Chaudhary, head of home loans, Paisabazaar.com.
“Rationalisation of risk-weights would translate into lower provisioning requirement for funding borrowers for mid & high-value properties by the lenders,” Gaurav Pawra, CEO – housing finance, Clix Housing Finance Ltd said.
“With the new risk weights announced yesterday by the RBI, loan value has been delinked in ascertaining the risk weights. Banks’ requirement of capital would come down due to the lower risk weightage based on LTV. This might transform to lower interest rates; however, it all depends upon the risk appetite of the bank,” said Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP.
For more information, visit the website of All India ITR