During the second bimonthly monetary policy review announced on June 7, the RBI reduced the LTV (loan to value) ratios, risk weights and the standard asset provision rate for individual mortgage loans on certain categories for new customers.
“The RBI’s measures are negative for banks ‘credit, as lower capital requirements will weaken banks’ protection against the housing sector, which has grown rapidly in recent years, and encourage an increase in lending.” global rating agency Moodys said in a report here today.
He said this growth is occurring as non-bank finance companies increasingly target the home loan segment, posing greater downside risk should house prices correct.
The RBI has lowered the risk weight for home loans above Rs 75 lakh to 50% from the previous 75%, while for loans between Rs 30 lakh and Rs 75 lakh the risk weight has been reduced from 50 to 35%.
The standard asset allowance, or the amount of money to set aside for each loan made, on the home loan has been lowered to 0.25 percent from 0.40 percent previously.
The RBI also removed the previous distinction of risk weights based on loan-to-value ratios for loans in the same category.
Over the next 12-18 months, the rating agency expects the system’s overall bank credit growth to remain subdued given weak bank balance sheets amid continued deterioration in asset quality. .
In March 2017, the annual growth of bank credit was 7.6%, compared to 10.2% the previous year.
“Although lower risk weights would stimulate sluggish credit growth while limiting the effect on banks’ capital position, we believe that competition for home loans has increased significantly between banks and corporations. non-bank financing, ”the report says.
Since 2015, the growth of home loans has been about double that of overall bank lending.
In 2015, the overall growth of bank credit was 7.8%, while housing credit was 16.7%. During the fiscal year ended March 2017, bank lending grew 7.6%, while the mortgage segment grew by 15.2%.