The Reserve Bank of India’s (RBI) move allowing banks to assign a lower risk weightage of 50 per cent on home loans of up to Rs 30 lakh will bring down interest rates for subscribers in metros and big cities. Hitherto, loans of up to only Rs 20 lakh enjoyed a 50 per cent risk weightage. It was much higher at 150 per cent for loans over Rs 20 lakh.

On April 7, 2008, The Indian Express had reported that given the sharp escalation in housing prices, especially in bigger cities, the limit of Rs 20 lakh for priority-sector lending needed to be raised. Banks and home finance companies said they would think twice before passing on the cost of a hike in cash reserve ratio (CRR) to borrowers. Some others said they would not hesitate to transfer the benefits to customers.

If we take the interest rates quoted by SBI, till now the interest rate for loans up to Rs 20 lakh for a tenure of 20 years stood at 10.5 per cent and those above Rs 20 lakh stood at 10.75. Since the benefit of lower risk weightage will now extend to loans up to Rs 30 lakh, a customer will save Rs 505 in his EMI for a loan of Rs 30 lakh at an interest rate of 10.5 per cent.

GE Money Wizard Housing Finance chief executive officer Egisto Franceschi said, “It will benefit more customers outside tier-I cities as property prices in big cities are much higher. Once we figure out the benefits to us, we will transfer these to our customers.”

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