The central bank continues with lower risk weights on home loans

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The Reserve Bank of India will expand guidance on maintaining rationalized risk weights for individual home loans.

“Recognizing the importance of the housing sector, its multiplier effects and its role in supporting overall credit growth,” the regulator has decided to extend the guidelines issued in October 2020 until March 31, 2023, according to a statement on the development and regulation guidelines , which are published together with monetary policy.

Risk weights for a loan relate to the principal charge on it. Lower risk weights allow banks to lend more to this specific sector as they are less capital intensive.

Previously, the risk weights were linked to the size of the loan and the loan-to-value ratio. In October, the regulator only linked the risk weights of individual home loans to the loan-to-value ratio. The standards were valid until March 31, 2022.

Individual home loans with a loan-to-value ratio of up to 80% should carry a 35% risk weight. For loans with a higher LTV ratio between 80% and 90%, the assigned risk weights were 50% in October 2020.

Home loans are among the fastest growing areas for domestic banks. According to RBI’s monthly credit data, outstanding home loans granted by the banking sector stood at Rs 15.78 lakh crore in February, up 6.7% yoy.

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