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In order to give a fillip to the housing sector at a time when the economy is facing a slowdown, the Reserve Bank of India on Friday announced two measures that will increase flow of bank credit to builders/developers and individuals buyers.
Further, loans to the these entities could become a tad cheaper and the prices of housing units could come down.
According to the RBI, builders/developers of residential housing projects will now be classified under the commercial real estate-residential housing (CRE-RH) category, attracting lower risk weight and lower standard asset provisioning.
Depending on the risk involved, banks are required to attach weights to loans to arrive at the capital they will have to apportion for making a loan.
They are also required to set aside funds for making provision for standard loans (or performing loans).
Builders/developers coming under the CRE-RH category will attract lower risk weight of 75 per cent (as against 100 per cent for CRE projects) and lower standard asset provisioning of 0.75 per cent (1 per cent for CRE projects).
As banks will get capital relief on account of lower risk weight and standard asset provisioning, they will be able to offer loans to builders/ developers at slightly lower rates. In turn, the builders/developers are expected to pare the selling price of the homes they build.
Further, loans to the these entities could become a tad cheaper and the prices of housing units could come down.
According to the RBI, builders/developers of residential housing projects will now be classified under the commercial real estate-residential housing (CRE-RH) category, attracting lower risk weight and lower standard asset provisioning.
Depending on the risk involved, banks are required to attach weights to loans to arrive at the capital they will have to apportion for making a loan.
They are also required to set aside funds for making provision for standard loans (or performing loans).
Builders/developers coming under the CRE-RH category will attract lower risk weight of 75 per cent (as against 100 per cent for CRE projects) and lower standard asset provisioning of 0.75 per cent (1 per cent for CRE projects).
As banks will get capital relief on account of lower risk weight and standard asset provisioning, they will be able to offer loans to builders/ developers at slightly lower rates. In turn, the builders/developers are expected to pare the selling price of the homes they build.
Home loan rates
Interest rates on housing loans could come down marginally as the central bank has revised risk-weights downwards.
As property prices in metros and their extended suburbs are ruling high, the central bank has brought down the risk weight on home loans above Rs 75 lakh to 75 per cent from 125 per cent. Lower risk weight translates into lesser capital that a bank has to set aside for making a home loan.
For example, if a borrower took a Rs 1-crore loan, earlier the bank would have had to set aside Rs 11.25 lakh (at a risk weight of 125 per cent and capital adequacy of 9 per cent) capital to make the loan. Following the downward revision, the bank will need to set aside only Rs 6.75 lakh.
NHB to follow suit
The regulator of housing finance companies, the National Housing Bank, plans to follow in the RBI’s footsteps and issue a similar notification within a week.
NHB Chairman and Managing Director R.V. Verma said the RBI measures recognise the fact that quality of loans (assets) in the housing sector is quite good.
“With cheaper loans, builders/developers will be encouraged to bring down the unit price. Individual borrowers will also get some relief on the interest-rate front. The latest RBI measures will give a boost to the economy,” said Verma.
ramkumar.k@thehindu.co.in
Source: thehindubusinessline
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