Kotak Securities Ltd (KSL) said it is less optimistic on the linkages between changes to risk weight and loan growth, interest rates or credit flow.

“It is most likely that there is lack of confidence between lenders to take risk, while borrowers may be less certain of the near-term outlook on their financials leading to a lower off take,” said the wholly-owned subsidiary of Kotak Mahindra Bank in a report.

The Reserve Bank of India (RBI), in its bi-monthly monetary policy on October 9, had announced two primary measures for the banking system to provide liquidity and improve credit flow by modifying the definition pertaining to retail/SME loans.

On the liquidity front, the RBI announced: (1) ₹1 lakh crore of on tap Targeted Long-Term Repo Operation (TLTRO) window, available up to March 2021, of three years duration to be deployed towards specific sectors through bonds/Commercial Papers/loans and classified as held-to-maturity (HTM); (2) HTM classification of SLR up to 22 per cent of deposits for investments between September 2020 and March 2021 extended till March 2022. This was at 19.5 per cent earlier.

On the credit flow front, the RBI announced: (1) limit for regulatory retail, having lower 75 per cent risk weight, has been expanded to ₹7.5 crore (from ₹5 crore); (2) Risk weight on housing loans is delinked from loan amount, allowing higher LTV (loan-to-value) loans for the same amount of risk weight.

Sceptical

“We are sceptical on the linkage between the announcements of capital change on housing loans with credit growth in housing. We would, at best, look at it as a sign that the RBI is probably comfortable if lenders expand credit in this segment,” as per the KSL report.

As an added benefit, it would help in economic recovery, given the importance of real estate in the economy.

“The first level of impact of better capital utilisation is unarguable though we need to understand that returns come early and risk comes later.

“Prima facie, the benefit appears to favour banks with a portfolio of loans that is in the higher ticket size. However, it is the growth which appears to be less certain,” said KSL analysts MB Mahesh, Nischint Chawathe, Abhijeet Sakhare, Ashlesh Sonje and Dipanjan Ghosh.

“...There is a general lack of confidence to take more credit. This is probably evident when we look at the slow off take for the credit guarantee program of the government,” the analysts said.

They observed that banks have had a challenging past decade where most measures (restructuring, corporate debt restructuring, Strategic Debt Restructuring, 5:25, Scheme for Sustainable Structuring of Stressed Assets) to revive stressed assets were less effective.

“It is quite likely that this has led to lenders increasing scrutiny before disbursement and stepping up surveillance. On the other hand, borrowers want more certainty before taking higher credit,” the analysts added.

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