RBI to rationalise risk weightage on housing loans to push demand – ET RealEstate

MUMBAI: In order to promote the housing sector, Reserve Bank of India on Friday decided to rationalise risk weightage on housing loans, making the product attractive for both borrower and lenders.

With revision in the risk weightage, the requirement of capital provision for banks will come down. This will encourage banks to push housing loan products with attractive features.

“Recognising the criticality of the 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 Governor Shaktikanta Das said.

Such loans shall attract a risk weight of 35 per cent where LTV is less than or equal to 80 per cent, and a risk weight of 50 per cent where LTV is more than 80 per cent but less than or equal to 90 per cent, he said.

This measure is expected to give a fillip to bank lending to the real estate sector, the statement on Developmental and Regulatory Policies said.

According to a Bank of India senior official, the RBI’s move will give a major boost to the housing sector particularly the retail housing.

“Banks will definitely be benefited with lower provisioning by lending to this segment which will ultimately encourage banks to make this product more price attractive,” the official said.

Commenting on the decision, Housing.com Group CEO Dhruv Agarwala said rationalising risk weightage on home loans and linking it to LTV ratio will effectively result in higher credit flow to the real estate sector, which is positive news for the sector.

Also, the hike in credit limit for retail exposure by a single lending entity from Rs 5 crore to Rs 7.5 crore is a welcome move that will immensely help both retail as well as small businesses, he said.

As per the present RBI instructions, the exposures included in the regulatory retail portfolio of banks are assigned a risk weight of 75 per cent.

For this purpose, the qualifying exposures need to meet certain specified criteria, including low value of individual exposures. In terms of the value of exposures, it has been prescribed that the maximum aggregated retail exposure to one counterparty should not exceed the absolute threshold limit of Rs 5 crore, the statement said.

“In order to reduce the cost of credit for this segment consisting of individuals and small businesses (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 in respect of all fresh as well as incremental qualifying exposures,” it said.

This measure is expected to increase the much needed credit flow to the small business segment, it said.



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Banks plan EMI deferment for home loan restructuring – ET RealEstate

MUMBAI: Lenders, including SBI, are working on restructuring options for home loans where the overall tenure of the loan does not extend by more than two years, even after relaxing the repayment schedule.

The options include allowing EMI deferment for a few months in cases where the borrower has suffered total loss of income or allowing step-up EMIs, with a lower payout for a couple of years to make up for a reduction in salary or loss of income due to the pandemic.

According to sources, the KV Kamath committee will not look into retail and home loan restructuring and banks will draw up their own proposal which they will submit to their boards by early next month after getting an idea of the number of borrowers facing stress.

Bankers are keen to restructure loans in order to avoid having to classify defaulters as non-performing assets. Also, banks say this isn’t the right time to enforce security and attach assets. Though RBI has let banks extend loan tenure by two years, bankers say that they cannot provide a two-year moratorium.

Anyone with a 15-year loan who has availed moratorium for six months will already see their overall loan tenure extend by 14 months. This means that at most banks can defer EMI by a few months. The exact relaxation would depend on the interest rate that the borrower will be paying. While home loan rates have come down to below 7%, banks say that it will be difficult to provide their best rates to restructured loans as lenders have to make an additional provision of 10% on restructured loans. This will increase costs by up to 30 basis points.

According to the terms of reference of RBI’s appointment the Kamath committee is expected to submit its report by mid-September. Bankers expect the committee to give various parameters for restructuring including the maximum debt-equity ratio to be allowed, the permissible leverage for each sector like hospitality, aviation, real estate, or construction.

The committee would also decide under what circumstances can conversion of debt to equity would be allowed. In addition, every individual corporate loan, where bank exposure is over Rs 1,500 crore would be reviewed by the committee to consider restructuring.



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Canara Bank slashes MCLR by up to 30 bps across various tenors – ET RealEstate

NEW DELHI: State-owned Canara Bank on Thursday slashed its marginal cost of fund-based lending rate (MCLR) by up to 30 basis points across various tenors. The overnight and one-month lending rates have been cut by 20 basis points (bps) to 7 per cent each. The three-month MCLR has been revised to 7.15 per cent from 7.45 per cent, Canara Bank said in a regulatory filing.

The six-month MCLR has been cut to 7.40 per cent from 7.50 per cent, the bank said. The one-year MCLR has been revised to 7.45 per cent from 7.55 per cent earlier.

The revised lending rates will be effective from August 7, Canara Bank said.

The reduction in MCLR will bring down burden on borrowers.

The Reserve Bank of India (RBI) on Thursday kept the interest rates unchanged, but maintained an accommodative stance, implying more rate cuts in future if the need arises to support the economy hit by the COVID-19 crisis.

The benchmark repurchase (repo) rate has been left unchanged at 4 per cent, Governor Shaktikanta Das said while announcing the decisions taken by the central bank’s Monetary Policy Committee.



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Union Bank of India cuts home loan interest rate to 6.7% – ET RealEstate

MUMBAI: Union Bank of India has slashed interest rate on home loans for salaried to 6.7%, which is lower than the general category mortgages of State Bank of India (SBI), which has traditionally offered the lowest interest rate.

Union Bank charges 6.7% for loans up to Rs 30 lakh for salaried borrowers with a credit score of at least 700, which must include a woman applicant. For loans above Rs 30 lakh and up to Rs 75 lakh, the best rate is 6.95%. For larger sized loans, interest rates begin at 7%. For salaried borrowers, where a man is the sole borrower, the rate is 6.75%, which is also the rate for non-salaried borrowers.

SBI’s home loan rates for women borrowers for loans up to Rs 30 lakh start from 6.95%. Last month, LIC Housing Finance had reduced interest rates to 6.9%— its lowest ever. Another public sector lender, Bank of Baroda, has home loans starting from 6.85%. Market leader HDFC currently charges 6.95% for loans up to Rs 30 lakh where the borrower is a woman. For loans up to Rs 30 lakh to Rs 75 lakh, the interest rate rises to 7.2%.

Home loan rates are expected to dip further in coming weeks with the Reserve Bank of India widely expected to cut its benchmark repo rate by 25 basis points (100bps = 1 percentage point) in its next bi-monthly policy review to be announced on August 6. Since banks have to mandatorily link the reference rate for the home loans that they offer to the repo, any change by the RBI will bring down the cost of funds for borrowers.

While there has been a drop in property sales during the lockdown, lenders are also trying to grow their market share by attracting existing borrowers from other lenders through refinance. Union Bank of India, which has acquired Andhra Bank and Corporation Bank, has increased its branch network following the merger.



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