RBI relaxes lending norms for housing loans

[N.Sukumar]

Reserve Bank on Thursday relaxed the risk provisioning norm for
housing loan up to Rs 30 lakh, a move that would make it easier for
banks to provide loans for purchase of residential properties.

The central bank on Thursday issued notification in pursuance of the
annual credit policy announcement made by the Reserve bank Governor Y
V Reddy on 29th April.

"It has been decided to enhance the limit of Rs 20 lakh to Rs 30 lakh
in respect of bank loans for housing in terms of applicability of risk
weights for capital adequacy purposes. Accordingly, such loans will
carry a risk weight of 50 per cent," Reddy had said.

The move would provide the bank additional capital for lending more to
housing sector.

However, it may not result in immediate softening of interest rate for
the housing sector, Oriental Bank of Commerce Executive Director Allen
C A Pereira told a news agency.

The RBI has modified the provisioning limit for housing loan to take
care of the growing property rates mainly in the urban centers, said.

As per the Basel II norms, banks are required to keep 9 percent of the
specified portion of the loan amount as capital.

For up to Rs 30 lakh housing loan the risk provisioning norm would
apply for the 50 percent of the loan value.

Earlier the specified amount was 75 per cent of the loan value between
Rs 20-30 lakh.

For loans exceeding Rs 30 lakh for purchase of residential property,
the banks would have to make a risk provision on 75 percent of the
loan amount.

N.Sukumar
Research Analyst