In a boost to affordable housing, RBI to lower risk weights

In a major fillip to low-cost and affordable housing, the Reserve Bank of India announced that it proposes to reduce the risk weights applicable to “lower value but well collateralised” housing loans provided to individuals.

Reducing the risk weights for individual housing loans to promote low-cost and affordable housing combines well with the government’s declared policy of ‘Housing for All’ by 2022, said RV Verma, former Chairman of National Housing Bank and currently Member in pension regulator PFRDA.

While the central bank did not spell out the new risk weight to be applicable on such loans, it, however, mentioned that detailed guidelines will be issued separately.

Currently, the minimum risk weight applicable on individual housing loans is 50 per cent.

This is an important regulatory signal to lenders that could positively impact volumes of lending to affordable housing segment and also at lower cost to borrowers, Verma told BusinessLine .

Any reduction in risk weights would positively impact the balance sheets of lenders as it would free up capital for more lending to affordable housing, he added.

The RBI announcement also indicates a lower risk perception of this affordable housing segment on part of the banking regulator.

Banks could now push more housing loans given the lower risk perception of the regulator on the affordable housing segment.

‘To bring down costs’ Rajiv Talwar, CEO, DLF Ltd, said that the decision to cut the minimum risk weight will further bring down borrowing cost for genuine home buyers. “It is perhaps time to implement suggestions of SBI chairperson to re-introduce teaser home loan rates,” he said.

Anil Kothuri, President, Edelweiss Retail Finance, said the RBI announcement to lower risk weights for certain housing loans to individuals will shore up capital adequacy for lenders.

It will also improve the supply of loans to the affordable housing segment and borrowers could also benefit from lower interest rates.

Anuj Puri, Chairman and Country Head, JLL India, said the outlook for affordable housing sector is bright as the RBI Governor has made provisions for lending to this sector to become less stringent and broader in scope.

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