In a move that will benefit borrowers, the Reserve Bank of India has proposed extending the lower risk weights on home loans by one more year till March 31, 2023.
“This will facilitate higher credit flow for individual housing loans,” RBI Governor Shaktikanta Das said on Friday.
The Reserve Bank had on October 12, 2020, rationalised the risk weights on individual housing loans by linking them with loan to value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022.
“Recognising the importance of the housing sector, its multiplier effects and its role in supporting overall credit growth, it has been decided that the risk weights prescribed in the circular ibid shall continue for all new housing loans sanctioned up to March 31, 2023,” said the Statement on Developmental and Regulatory Policies.
Loan to value ratio
According to the RBI’s October 2020 circular, risk weight for all the new housing loans would be 35 per cent if the loan to value ratio is 80 per cent or lower. If the LTV ratio is higher than 80 per cent and up to 90 per cent, the risk weight would be 50 per cent.
According to experts, the move would give more capital in the hands of the company and enable them to extend credit.
“The housing finance sector clocked growth of around 8-10 per cent for 2021-22, and this dispensation allows more capital in the hands of lenders, especially housing finance companies, to extend credit to home loan borrowers,“ said Ravi Subramanian, MD and CEO, Shriram Housing Finance.
“The announcement regarding the rationalisation of risk weights for individual housing loans is great news for lenders and will ensure credit flow to the sector. The policy support from the government continues to provide thrust and we expect 2022-23 to witness an inflow of homebuyers and increased construction activity as the market sentiments maintain a positive trajectory,” said Y Viswanatha Gowd, Managing Director and CEO, LIC Housing Finance.