The Reserve Bank of India’s (RBI) new norms on individual housing loans is expected to give a strong fillip to the housing loan market in India, says a Bank of America Merrill Lynch report.
The RBI on Thursday released fresh norms on Loan-to-Value (LTV) ratios and risk weights for individual housing loans.
“We expect the new guidelines to give a strong fillip to the housing loan market in India,” BofA-ML said, adding that banks having a large share of housing loans in their portfolios are likely to benefit from the move.
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As the RBI has raised the minimum home loan size to Rs. 3 million from Rs. 2 million, this will attract a lower risk weight of 35 per cent as against 50 per cent earlier, according to the global financial services major.
“This is likely to help the banks to price housing loans better and generate higher returns,” it said, adding “this is likely to provide upside to our expected home loan growth of 18-20 per cent.” The RBI said that in the case of ‘individual housing loans’ falling under the loan category of up to Rs. 30 lakh, the LTV ratio is now up to 90 per cent. For properties above Rs.30 lakh and up to Rs.75 lakh, the LTV is up to 80 per cent and those above Rs.75 lakh, the ratio comes in at 75 per cent.
This means banks can now provide home loans up to 90 per cent for properties that cost Rs. 30 lakh or below, RBI said. Earlier, the facility was available only in cases where the cost was up to Rs.20 lakh.
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The move will benefit those home seekers who plan to buy properties in the range of Rs.20-30 lakh.
The RBI’s decision comes in the wake of all major banks reducing interest rates post the central bank’s policy rate cut.