Real Estate

Cheaper big-ticket home loans to give realty sector a boost

Our Bureau Mumbai | Updated on October 09, 2020 Published on October 09, 2020

The measure is expected to particularly give relief to big ticket loans above ₹75 lakh.

Home loans over ₹75 lakh may get cheaper, with the RBI’s move to link risk weights for home loans with the loan-to-value (LTV) ratio.

The LTV is the ratio of the loan amount to the value of the property.

In a move that could reduce banks’ capital requirement and ease rates to boost demand, the RBI has rationalised risk-weights for new housing loans sanctioned up to March 31, 2022. Such loans will now attract a risk weight of 35 per cent where the LTV is less than or equal to 80 per cent, and a risk weight of 50 per cent where the LTV is more than 80 per cent but less than or equal to 90 per cent.

The measure is expected to particularly give relief to big ticket loans above ₹75 lakh.

According to an SBI report, these loans constitute around 12-15 per cent of the total housing loan portfolio, where the risk weight is higher.

Assuming a growth of 20 per cent for the next 18 months, this could reduce the capital requirement of around ₹500 crore, which can enable banks to ease rates to boost demand, the report said.

Punjab National Bank MD & CEO CH. SS Mallikarjuna Rao said that the move will give impetus for high value houses.

Boost to realty sector

The central bank emphasised that the measure is expected to give a fillip to bank lending to the real estate sector. But a lot hinges on the recovery in real estate sales and demand for big-ticket home loans.

According to the RBI’s release, the rationalisation of risk weights applies to home loans given by banks. A follow-up notification for Housing Finance Companies is expected.

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Published on October 09, 2020
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