Banks need Rs 3,000 cr extra capital

RBI to raise risk weight on housing loans from 50% to 75%.

Several banks will have to allocate more capital "" around Rs 3,000 crore collectively "" following the Reserve Bank of India's decision to raise the risk weight on housing loans from 50 per cent to 75 per cent and that on consumer credit, including personal loans and credit cards, from 100 per cent to 125 per cent.

This is because their capital adequacy ratio will come down with respect to these loans. However, none of the banks will face any problem on capital adequacy as they are adequately capitalised.

ICICI Bank, for instance, may have to allocate an additional Rs 450 crore worth of capital for its close to Rs 20,000 crore home loan portfolio. On a 50 per cent risk weight, its requirement of capital has been about Rs 900 crore.

Now, it will require Rs 1,350 crore worth of capital. However, on its total retail portfolio, including housing loans, the bank's capital requirement could run to almost Rs 1,000 crore, banking analysts said.

The bank's retail assets increased by 57 per cent to Rs 39,609 crore on September 30 from Rs 25,205 crore a year ago. At the end of 2003-2004, its retail assets increased by 74 per cent to Rs 33,423 crore.

ICICI Bank's capital base is around Rs 13,000 crore and its capital adequacy ratio 15.2 per cent. This will come down following the new norms. Analysts said to maintain the current return on assets, the bank will have to raise the prices of retail loans by around 70 basis points.

The State Bank of India, which has a home loan portfolio of around Rs 9,000 crore, will have to allocate additional capital of around Rs 200 crore. The total additional capital allotment for the bank will be more as its credit card and other retail businesses are growing.

Housing Development Finance Corporation (HDFC) will not be required to allocate any additional capital as there is no change in its risk weight of 50 per cent.

With the rise in risk weight on home loans for banks, housing loan companies will now have a level playing field. For instance, on a stipulated capital adequacy ratio of 12 per cent, HDFC needs to allocate Rs 6 for every Rs 100 worth of home loans.

On a minimum capital adequacy ratio of 9 per cent, banks will now require to allocate Rs 6.30 for every Rs 100 worth of loans.

As a fallout of the hike in risk weight, the collective additional capital requirement for the industry may run into over Rs 3,000 crore.

"Aggressive retail players, including some of the new private and foreign banks, will be required to allocate fresh capital," banking industry sources said. Analysts predict that interest rates on housing loan will rise soon.

"The banks cut their home loan rate when the risk weight was cut to 50 per cent a few years back. Now with the rise, they may hike the loan rate to offset the hit on their balance sheet," one analyst said.

A recent Crisil report on non-performing assets in home loans pointed out that the housing loan NPAs of banks are as high as 3.3 per cent versus HDFC's NPA of 0.89 per cent.