 "Lower risk weight to boost low-cost housing")
The Reserve Bank of India (RBI)'s move to reduce the risk weight on loans for low-cost homes is expected to boost sales of such houses.
RBI's proposal is expected to increase lending in the segment due to lower capital required to be set aside for such loans and also lower lending rates for the borrowers. Currently minimum risk weight on home loans stands at 50 per cent.
The Union government had already said there is a huge demand for such loans but availability of loans was limited.
"If risk weightage for such loans is reduced to 25 per cent, capital adequacy ratio (CAR) will come down. Banks and housing finance companies will be able to lend double the amount of what they used to lend earlier in the same category," said Deo Shankar Tripathi, chief executive officer, Aadhar Housing, a unit of DHFL.
He explained that if risk weightage is reduced to 25 per cent, at nine per cent CAR and 12 per cent CAR respectively, banks and housing finance companies can lend double the amount of funds of what they used to lend earlier and their cost of capital will come down
"Banks and housing finance companies (HFCs) will be able to cut rates by 15 to 20 basis points (bps) because of lower cost of funds and they will be able to lend more to borrowers. The sales of affordable houses will also go up," Tripathi said.
Sunil Rohokale, managing director and chief executive of fund manager, ASK group, said coupled with tuesday's rate cut of 50 bps and proposed reduction in risk weightage in loans for low-cost home loans, borrowers can expect a 50-65 basis point cut in home loan rates.
"More money will flow into low-cost housing and at lower rates," said Vikas Oberoi, chairman and managing director of Oberoi Realty, a Mumbai-based developer. Property developers hope banks to pass on the benefit of RBI cutting repo rates by 50 bps to borrowers and the move to cut rates will revive home sales, which is languishing in cities such as Mumbai and Gurgaon.
"We expect banks to reduce interest rate by 25-50 bps making home loans more attractive which shall witness an uptake in the housing demand," said Sarang Wadhawan, vice-chairman and managing director, HDIL, a Mumbai-based developer.
Added Rohit Poddar, managing director, Poddar Developers: "…however, it will not be effective unless the banks pass on the reduction in repo rate to the home loan customer and also to the developer in the case of affordable housing."
"Both these rates have not come down in conjunction with the reduction in repo rates and there is still a large gap between the same. The large gap should not be used by banks to manage their non-performing assets - defaulting promoters should be brought to book - and instead the reduction should be passed on to where is it actually intended and required," he said.
