The Reserve Bank of India has decided to relax the risk weightage of banks on personal housing loans, given the importance of the housing sector in economic activity. The move was taken by the Monetary Policy Committee headed by Reserve Bank Governor Shaktikanta Das last week. RBI says that this will reduce the provision of capital to banks and encourage them to give more housing loans. At the same time, experts say that without cutting rates, the RBI has taken such a step that can make loans even cheaper.
Benefit from change in LTV
For all home loans sanctioned by March 2022, only the criterion of loan to value ratio (LTV) will be applicable for the loan amount and the value of residential property. The RBI has said that now banks will have to make provision of capital on the basis of 35 percent risk weight on loans up to 80 percent of the residential property value. Similarly, for loans up to 90 percent, the risk has to be capitalized according to the standard 50 percent weighting. With this, banks will have more capital available to give loans, so that they will give loans easily.
Banks will be tempted on home loan
Till now banks had to make provision according to different risk weights depending on both the loan amount and LTV. Experts say that rationalizing the risk weight criterion will encourage banks to give personal housing loans. At present, the risk weight of loans offered by banks such as home loans, car loans, are decided in two ways. Risk weight means that banks assess the risk involved in giving a particular loan and accordingly they provision the loan, that is, save an amount. The first way in this is the loan size, that is, how much loan is being given. Second, LTV means that the borrower has given the total loan as a down payment and how much money the bank has financed.
Link to cheap loan from LTV
Suppose LTV is up to 80 per cent, then the risk weight will be 35 per cent. If 80 to 90 percent, then the risk weight will be 50 percent. This means that if you want a cheap home loan, then you will have to keep LTV to a minimum, for which you will have to make a maximum down payment. That is, the higher the down payment, the lower the risk weight and then the easier way will be to get a cheaper loan.
Pay off expensive debt first
What to do if your home loan is running and you have surplus funds from somewhere. Repay a home loan or invest this surplus fund elsewhere. Experts say that when this happens, one should repay the highest interest debt. Home loan is available at less than seven percent interest. At the same time, the interest rate of personal loan is close to nine percent. While an investment in an equity fund can provide returns of up to 15 per cent. In such a situation, you can repay the home loan as per your convenience, because there is no penalty in it.
Employment opportunities will increase
The Reserve Bank has said that in view of the importance of housing development sector in economic growth and employment generation, it has been decided to rationalize the provisions related to risk capital on debt. A top banker said that at present, consumers are spending very carefully. At the same time, banks are also giving loans after examining the possibility of default in view of Corona crisis. In such a situation, cash is not coming in the market. While real estate is an area where direct employment is boosted, demand also increases in the field of cement, iron and other construction products. This increases the employment and also boosts the economic boom.
These will be changes
35% risk weightage will be applicable for 80% LTV, 50% risk weightage will be applicable from 81 to 90%.
LTV is up to 90% for home loans up to 30 lakh rupees, LTV up to 80% on home loans ranging from 30 to 75 lakhs.
LTV up to 75% on home loans above 75 lakh rupees