RBI cuts risk weight for home-loan seekers

Tribune News Service

New Delhi, October 9

Around 80% of home-loan borrowers and 70% of home loans (by value) would meet the criteria for lower risk weights set by the RBI and thereby benefit from the change in regulation, according to Crisil Research.

Home loan borrowers in smaller cities are likely to be the biggest gainers from the RBI’s move due to limited supply at affordable price points in the larger cities. As per Crisil Research’s analysis, around a quarter of the incremental housing stock supply in the top 10 cities would have a price point lower than Rs 40 lakh.

Crisil expects interest rate on home loans to come down by another 25-30 basis points over the next few months, triggered by the RBI’s move to lower risk weights on select home loans (up to Rs 75 lakh) where borrowers are willing to put in more money and thus lower the loan-to-value (LTV) ratio.

LTV ratios for home loans have been moving down over the years. Data on home loans disbursed across 13 cities show average LTV has come down from 75% in the third quarter of fiscal 2010 to 66% in the same quarter of fiscal 2015. This means a higher proportion of new loans would meet the criteria for lower risk weights, Crisil said.

The RBI has lowered risk weights on housing loans of up to Rs 75 lakh from 50% to 35% in cases where the borrower puts in at least 20% of the value of the home as own equity for loans up to Rs 30 lakh and 25% of the value of the home as own equity for loans between Rs 30 lakh and Rs 75 lakh.

Vineet Relia, managing director of SARE Homes, said the RBI’s decision to allow a loan-to-value ratio of up to 90% for home loans of Rs 30 lakh or less is a buyer-friendly move.

“We were hoping that banks would ensure proper transmission of rate cuts to consumers. In that view, a decreased risk weightage is a great strategy to maintain a positive sentiment in the market and generate demand for homes,” he said.