RBI gets tough with home loan segment

In other words, one per cent of the loan amount will be deducted from gross profit and kept in another account. Accordingly, there will be pressure on bank’s profit, which may also put upward pressure on loan rates. Industry estimates say the average home loan lies between Rs 15 lakh-Rs 20 lakh.

The RBI also hiked the risk-weight exposure on commercial real estate to 150 per cent.

Analysts say the RBI move reflects its oft-voiced concern on rising property prices. “While the RBI has been resorting to raising risk weights as a deterrent to curb banks’ lending to the housing and real estate sector, a more prudent policy would be to link the risk weight to the loan-to-value ratio,” said Keki Mistry, managing director of HDFC.

So, instead of the blanket increase, the RBI should have applied the higher risk weight only to large loans that make up a significant proportion of the value of the property.

The increased provisioning, particularly on housing loans above Rs 20 lakh and commercial real estate loans, is a sharp measure, he said.

Explaining the RBI’s rationale, RBI governor YV Reddy said: “ It’s based on the feedback that there was a tendency of multiple acquisition of houses by the consumers which was increasing the risk profile of both the banks and the consumers… If the real estate market improves by way of scrapping of Urban Land Ceiling Act, rent control laws and low transaction cost… then we may look at reducing the risk-weight of real estate sector loans.”