How Beneficial Will Reduced Risk Weightage Be For Borrowers?

May 5, 2007	(Be the first to rate this story!)  Loading ...
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The RBI will not bring any change in the benchmark interest rates and Cash Reserve Ration (CRR) rates but bring a drop in risk weight on home loans below Rs. 20 lakh.

There is a significant reduction in risk weightage on home loans which has slipped from 75 per cent to 50 per cent. This renders that for every Rs 100 lent at home loans, the bank will now need to have its own capital of Rs 4.50 as against Rs. 6.75 earlier. This is allowing for a 9% capital to risk weightage ratio that banks will be maintaining from now onwards.

Banks have been asked to extend the benefits of reduced risk weightage to consumers or they could translate it into lower interest rate for loan borrowers in the Rs 20 lakh category. The conversion would be based on the lending institution’s portfolio.

The policy signifies a lower risk perception for loans below Rs. 20 lakh which comprises end users. Both consumption and investment are different entities. The reduction in risk weightage may affect in terms of funds available with banks and can impact on interest rates, says RV Verma, Executive Director, National Housing Bank.

However, the reduced risk weightage will add to lending capacity of the banks in the lower than Rs. 20 lakh bracket since fund requirement will be reduced to a substantial extent.  It would help the lenders to increase their presence in that segment, which will finally be beneficial for loan borrowers. Still, increases in the home loan interest rates could be marginally lower than what it had been previously forecasted by the industry watchers.

The RBI is waiting for the results of its earlier rounds of hikes in interest rates. The increase has meant lending at 13 to 14% to property developers and at 11.5 to 12.5% to corporates, which is significantly very high. This has already slowed down the economy, explains Rajesh Shah, Senior Vice-President, Real Estate Lending, UTI Bank.

As far as real estate developers are concerned, they find the policy useful for middle class people and loan borrowers in tier II cities rather than in metros.  The same view is shared by J.S Augustine, Corporate Advisor ACME Group. But he feels a need for increasing the limit in case of cities such as Mumbai where it should be in between Rs. 40 lakh to Rs. 50 lakh.

News Published Under:   Home Loans |

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