RBI cuts provisions, risk weights to make home loans cheaper

Mumbai: In what can make new home loans cheaper, the Reserve Bank on Tuesday reduced the standard assets provisions on individual housing loans to 0.25 per cent and also lowered the risk weights on such lending.

"As a countercyclical measure, the LTV (loan to value) ratios, risk weights and standard asset provisioning rate for individual housing loans" have been reviewed from today, the RBI said in the second bi-monthly policy statement.

The standard asset provisions, or the amount of money to be set aside for every loan made, has been lowered to 0.25 per cent from the earlier 0.40 per cent, which will help reduce the interest rates on home loans.

It also eased the risk weights for certain categories of loans, which will help banks on the capital adequacy front, and enable them to make more loans.

The risk weight for individual housing loans above Rs 75 lakh has been reduced to 50 per cent from the earlier 75 per cent, while for loans between Rs 30 and Rs 75 lakh, a single LTV ratio slab of up to 80 per cent has been introduced with a risk weight of 35 per cent.

RBI Governor Urjit Patel explained that this is a part of the central bank and the government attempts of "targeted interventions" to help prop-up the sagging growth numbers.