In a move that will give fillip to the beleaguered real estate industry in the country, the RBI in its October monetary policy announced has rationalized risk weightages linked to certain loan categories. This will not only boost credit offtake but borrowers will be able to get better rates.
"recognising the criticality of real estate sector in the economic recovery, given its role in employment generation and the interlinkages with other industries, it has been decided, as a countercyclical measure, to rationalise the risk weights by linking them only with Loan-to-value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022", RBI's Das.
So, where loans to value ratio is below or equal to 80 percent there will be 35 percent risk weight and if it is above 80 percent but less than or equal to 90 percent then risk weight shall be 50 percent. Risk weight is the function of the risk perceived to be associated with each of the loan kind or banks' asset.
And as per real estate experts, the move will given uptick to high value loans and will be beneficial to the overall industry in bringing more jobs
How this rationalization in risk weights on banks' assets will benefit home loan borrowers?
This rationalization of risk weights will make the bank to go for lower provisioning and hence reduce their cost and this will then be passed on to borrowers as lower rates on home loans. Importantly, now the risk weights as against the earlier regime shall be linked only to LTV ratio and not to loan amount also.
Hike in retail lending limit
Also there is mulled a hike in retail lending limit."In order to reduce the cost of credit for this segment consisting of individuals and small businesses (that is with turnover of up to Rs 50 crore), and in harmonisation with the Basel guidelines, it has been decided to increase this threshold to Rs 7.5 crore," the RBI said. This shall be applicable to all new as well as incremental loans and will boost credit disbursal to small borrowers.