NaAtMaD – News and Articles that Make a Difference

News, Articles, Announcements, Reports related to Indian Economics and Corporate World

Home Loan May Be Cut, RBI To Ease Risk Norms

Posted by Manish Agrawal on Thursday, 11 December, 2008

 State-owned banks are planning to cut rates on small-ticket home loansby up to 300 basis points by Friday, as RBI separately considers ways to help the banking sector make small home loans available at cheaper rates and relaxed norms, bankers said. 
“We have decided to bring down interest ratesfor loans up to Rs 20 lakh by 200 basis points while loans up to Rs 5 lakh would be cheaper by 300 basis points,” UCO Bank chairman and managing director SK Goyal told ET. 

Oriental Bank of Commerce (OBC) and Bank of India are also considering rate cuts by the end of this week, officials told ET, although the extent could vary significantly. The planned cuts will bring down rates for home loans up to Rs 20 lakh to between 8% and 10%. Nearly 80% home loans are below this amount. 

Meanwhile, RBI is likely to lower risk weightages for home loans of up to Rs 20 lakh, according to government officials and bankers with knowledge of the central bank’s thinking. Banks have to assign credit risks to all their assets, which vary between 0% and 100%, depending on the asset’s risk. Based on the risks, they have to maintain minimum capital. A lower risk weightage will allow banks to give more loans without raising more capital. 

A finance ministry official, who asked not to be named, said RBI could also ease provisioning norms in case of small housing loans. Banks have to keep certain moneyaside — known as capital adequacy ratio, or CAR, in banking parlance — for every loan. Currently, the CAR is set at 9%, which means for every loan of Rs 100 that carries 100% risk, banks have to keep aside Rs 9 as capital to cover the risk. 

“In case of housing loans, at present, RBI prescribes a risk of 75%. We expect that the central bank may reduce this to 50% for loans up to Rs 20 lakh,” said OBC executive director SC Sinha. This will mean that banks will need to set aside a smaller amount of capital to protect against defaults. Several banks are also likely to reduce the amount of margin money that customers need to put up for loans up to Rs 20 lakh, government officials said. For the past few months, banks have sought anywhere between 20% and 25% of the house’s value as margin from customers before approving loans. This could come down by 5 percentage points, and banks will be able to lend up to 85% of the house’s value. RBI is expected to come out with final guidelines on this issue by next week. 

Banks such as SBI had increased the requirement of margin money for housing loansin October in the wake of a shortage of liquidity in themarket. “The finance ministry and RBI have taken enough steps to ease liquidity conditions in the market…In such a situation, it is desirable that banks should bring down the margin requirement. However, the final decision rests with individual banks,” said another finance ministry official, who also did not wish to be named. 
In a fiscal stimulus package announced earlier this week, the government had said it would take steps to ensure cheaper housing loans for small borrowers. It is expected that public sector banks (PSBs) will come out with relaxed rules for home loans up to Rs 5 lakh and those between Rs 5 lakh and Rs 25 lakh.

Source Link : http://economictimes.indiatimes.com/Personal_Finance/Loan_Centre/Home_Loans/Home_Loans_News/Home_loan_rates_may_be_cut_RBI_to_ease_risk_norms/articleshow/msid-3821103,curpg-1.cms

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: