In a move to boost capital adequacy of housing finance companies (HFCs), National Housing Bank (NHB) has revised their risk weightage and based it on their loan-to-value (LTV) ratio.
Under the revised norms, HFCs will have to set aside capital depending on the LTV ratio. According to the new norms, the risk weightage for any housing loans sanctioned with an LTV ratio of more than 75 per cent has been increased from 50 per cent to 100 per cent.
For loans above Rs 30 lakh and with an LTV ratio of less than 75 per cent, the risk weightage will be 75 per cent.
However, for housing loans up to Rs 30 lakh with an LTV ratio of less than 75 per cent, the risk weightage stands unchanged at 50 per cent.
Earlier, for any housing loans above Rs 20 lakh, the risk weightage was 100 per cent.
Similarly, the regulator has also reduced risk weightage to 100 per cent from 150 per cent for HFCs’ exposure to commercial real estate.
“It is a very fair move as capital to be set aside should be linked to the risk taken. The higher the loan-to-value ratio, the higher is the risk. So, the capital requirement must also be higher,” said HDFC Vice-Chairman and MD Keki Mistry.
Our average LTV 65 per cent and so it will free up additional capital and improve our capital adequacy, he added.
“Earlier, any loans up to Rs 20 lakh attracted a risk weightage of 50 per cent. Now, the cap has been raised to Rs 30 lakh, which is a good thing for HFCs. The Capital Adequacy Ratio will be better off as the proportioning would be less for such loans,” said LIC Housing Finance Director and CEO R R Nair.
The average loan size of LIC Housing Finance is Rs 13.25 lakh.
