RBI Gives Boost To Home Finance, Cuts Risk Weight By Banks To 50%

Mumbai, May 25: | Updated: May 26 2002, 05:30am hrs
The Reserve Bank of India (RBI) has issued a notification allowing banks extending housing loans to individuals against mortgage of residential housing properties to assign a risk weight of 50 per cent instead of the existing 100 per cent, to encourage housing finance by banks.

Investments by banks in mortgaged-backed securities (MBS) of residential assets of housing finance companies (HFCs) would also be eligible for risk weight of 50 per cent for the purpose of capital adequacy, RBI said in a notification to the commercial banks. However, loans against security of commercial real estate would continue to attract 100 per cent risk weight, RBI said. The decisions are in line with the announcements made in the “Statement on Monetary and Credit Policy for the year 2002-03” by the RBI governor Bimal Jalan. “The Basel Capital Accord of 1988 and also the New Capital Adequacy Framework, which is at the consultative stage, envisage risk weight of 50 per cent and 100 per cent for claims secured by residential property and commercial real estate, respectively,” the statement said. “With a view to improve flow of credit to housing sector, it has been decided to liberalise the prudential requirement on risk weight for housing finance by banks and encourage investments by banks in MBS of HFCs, which are recognised and supervised by NHB,” it added.