RBI Governor Urjit Patel
Home loans may get cheaper with bankers today indicating that interest rate on such loans will come down following reduction of risk weights by the RBI. The decision to reduce the risk weights for home loans over Rs 30 lakh category will release capital for the banking industry and is a positive move, SBI Chief Arundhati Bhattacharya said in a statement. 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 Loan to Value (LTV) ratio slab of up to 80 per cent has been introduced with a risk weight of 35 percent. RBI Governor Urjit Patel explained that this is a part of the central bank and the government attempts of "targeted interventions" to help propup the sagging growth numbers. However, the Reserve Bank left lending rates unchanged citing risks to inflation due to spurt in farm loan waivers by states but raised lending capacity of banks to support economic growth. The large cut in inflation projection by the RBI in the monetary policy is in consonance with ground realities and is likely to create room for rate cuts in the latter half of the year, Bhattacharya said. According to Bank of India MD Dinabandhu Mohapatra, the reduction in statutory liquidity ratio by 50 basis points effective June 24 will facilitate banks to meet the LCR requirement of 100 per cent comfortably by January 1, 2019. However, this measure will not have an impact on credit offtake as banks are already in a situation of excess SLR in spite of sluggish credit growth at 5.7 per cent, he said. "The reduction in risk weights and standard asset provisioning on certain categories of housing loans will lower housing loan rates and increase housing loan portfolio of banks," he said. "Reduction in the risk weights on certain categories of the housing loans is indeed a positive signal.
Since retail loans are only showing signs of growth and housing loan segment, which is the major sector of retail, reduction in LTV ratio, risk weights and standard assets provisioning would spur up growth in this segment," Central Bank of India Chairman Rajeev Rishi said. Welcoming the decision of RBI, ICICI Bank MD and CEO Chanda Kochhar said the SLR cut and reduction in risk weights for housing loans are positive moves that will support bank liquidity and encourage growth in housing loans. According to Govind Sankaranarayanan, Chief Operating Officer Tata Capital, the decision to reduce the risk weight on housing finance for properties Rs 30-75 lakh should help reduce the burden borne by financers through capital costs and lay the platform for a rate cut in the future. Meanwhile, the RBI also said its forex department will henceforth examine proposal of companies before they can issue masala bonds to raise funds from overseas markets. The changes come as part of RBI's norms on external commercial borrowings (ECBs), trade credit, borrowing and lending in foreign currency. "On a review of the laid down framework for issuance of rupee denominated bonds overseas (masala bonds) and with a view to harmonise the various elements of the ECB framework, it has been decided that any proposal of borrowing by eligible entities by issuance of these bonds will be examined at the Foreign Exchange Department, Central Office, Mumbai," RBI said in a notification. Masala bonds are catching up fast as a source of raising fund from overseas markets including those by state-owned companies like NHAI and NTPC. Besides, RBI has also revised provisions for maturity period, all-in-cost ceiling and recognized lenders (investors) of masala bonds. For bonds up to USD 50 million per financial year, the maturity period will be three years and for bonds raising over USD 50 million (equivalent in Indian rupee) per financial year should be five years. Earlier, the minimum maturity period was of five years. "The all-in-cost ceiling for such bonds will be 300 basis points over the prevailing yield of the government of India securities of corresponding maturity," said the notification. For recognised investors, RBI said, the entities permitted as investors should not be related party. A recognised investor is any entity from a Financial Action Task Force (FATF) compliant jurisdiction. "The changes/revised instructions in respect of issuance of Rupee denominated bonds will be applicable from the date of issuance of this circular," it added. In 2015, Reserve Bank had permitted Indian entities to issue rupee denominated bonds in foreign markets, popularly termed as masala bonds, so as to access capital from even outside destinations.
RBI Governor Urjit Patel
SBI Chief Arundhati Bhattacharya