Even as a final decision on the sale of IDBI Home Finance (IHFL) is pending, the mortgage arm of IDBI Bank has sought time until March 31, 2009, from the National Housing Bank (NHB) to comply with the revised risk weight norms.
Under the new risk weight mechanism prescribed by NHB, IHFL needed an additional Rs 60.26 crore from December 2008 to maintain a capital adequacy ratio (CAR) of 12 per cent.
According to the earlier norms, the IDBI home finance subsidiary’s capital adequacy ratio was 14.7 per cent at the end of November 2008, but under the new guidelines applicable since December, CAR fell to 9.78 per cent.
Confirming the development, an NHB official said, “We have received a letter from IHFL in this regard. We are reviewing the reasons behind non-compliance.” The housing finance regulator needs to assess the steps that IHFL was taking to comply with the norms, he added.
IDBI Bank, which has put the home finance arm on the block, had cited the additional capital requirement as one of the reasons for the sale of IHFL. The proposal to sell the company, where Dewan Housing Finance is the highest bidder, was deferred at the last board meeting as the government sought more time to study the move.
A senior IDBI Bank executive, however, said too much should not be read into the issue as the public sector player would provide the additional capital.
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“Since the regulations came up all of a sudden, it is natural that we will require some time to comply with the changed norms,” he added.
On December 2, NHB came up with new guidelines that introduced loan-to-value (LTV) ratio-based risk weight calculation. As a result, the capital set aside by a housing finance company was linked to the LTV ratio. The risk weight for any housing loan sanctioned with an LTV ratio of more than 75 per cent was doubled to 100 per cent.
For loans above Rs 30 lakh, which had an LTV ratio of less than 75 per cent, the risk weightage would be 75 per cent. In case of home loans up to Rs 30 lakh, with an LTV ratio of less than 75 per cent, the risk weight was left at 50 per cent.
While the new norms helped most housing finance companies as their average LTV ratio was 60-70 per cent, IHFL needed additional capital as its average LTV ratio was higher than 75 per cent.
“Most of IHFL’s loan disbursed during the last three-four years had an LTV ratio of around 90 per cent. So, suddenly with the change in regulations, their CAR dropped below required level,” said a source.