Home loans may get cheaper with bankers indicating that interest rate on such loans will come down following reduction of risk weights by the RBI.
The decision to reduce the risk weights for home loans over Rs.30 lakh category will release capital for the banking industry and is a positive move, SBI chief Arundhati Bhattacharya said in a statement.
The risk weight for individual housing loans above Rs.75 lakh has been reduced to 50 per cent from the earlier 75 per cent, while for loans between Rs.30 and Rs.75 lakh, a single Loan to Value (LTV) ratio slab of up to 80 per cent has been introduced with a risk weight of 35 per cent.
RBI Governor Urjit Patel explained that this is a part of the central bank and the government attempts of "targeted interventions" to help prop-up the sagging growth numbers.
However, the Reserve Bank on 7 June left lending rates unchanged citing risks to inflation due to spurt in farm loan waivers by states but raised lending capacity of banks to support economic growth.
The large cut in inflation projection by the RBI in the monetary policy is in consonance with ground realities and is likely to create room for rate cuts in the latter half of the year, Bhattacharya said.
According to Bank of India MD Dinabandhu Mohapatra, the reduction in statutory liquidity ratio by 50 basis points effective 24 June will facilitate banks to meet the LCR requirement of 100 per cent comfortably by 1 January, 2019.
However, this measure will not have an impact on credit offtake as banks are already in a situation of excess SLR in spite of sluggish credit growth at 5.7 per cent, he said.
"The reduction in risk weights and standard asset provisioning on certain categories of housing loans will lower housing loan rates and increase housing loan portfolio of banks," he said.
"Reduction in the risk weights on certain categories of the housing loans is indeed a positive signal. Since retail loans are only showing signs of growth and housing loan segment, which is the major sector of retail, reduction in LTV ratio, risk weights and standard assets provisioning would spur up growth in this segment," Central Bank of India Chairman Rajeev Rishi said.
Welcoming the decision of RBI, ICICI Bank MD and CEO Chanda Kochhar said the SLR cut and reduction in risk weights for housing loans are positive moves that will support bank liquidity and encourage growth in housing loans.
According to Govind Sankaranarayanan, Chief Operating Officer Tata Capital, the decision to reduce the risk weight on housing finance for properties Rs.30-75 lakh should help reduce the burden borne by financers through capital costs and lay the platform for a rate cut in the future.