Housing finance stocks cheer RBI’s loan decision

Stocks of housing finance companies rose on Friday, following the Reserve Bank of India (RBI)’s move to cut the risk weight for individual housing loans of up to ~75 lakh.

While GIC Housing Finance rose 9.94 per cent to close at ~208.45 on the BSE, DHFL rose 2.88 per cent to close at ~228.5. CanFin Homes, Gruh Finance, HDFC and LIC Housing Finance stocks rose 2.78 per cent, 2.06 per cent, 1.01 per cent and 0.75 per cent, respectively.

On Thursday, RBI said it had cut the minimum risk weight for individual housing loans from 50 per cent to 35 per cent. For loans of up to ~30 lakh, the central bank increased the loan-to-value (LTV) ratio to 90. LTV is the highest loan amount a bank can disburse, as a proportion of the property price. The central bank’s move comes in the wake of all major banks cutting lending rates on home loans.

“We welcome RBI’s decision to allow LTV of up to 90 per cent for home loans of up to ~30 lakh. The move will improve affordability of low-cost housing for lowand middle-income customers DHFL has been serving for about three decades, besides giving a fillip to the ‘housing for all’ initiative,” said Harshil Mehta, chief executive of DHFL.

Meanwhile, CRISIL Research has said it expects interest rates on home loans to fall another 25-30 basis points through the next few months, owing to the central bank’s move to cut risk weights on select home loans (up to ~75 lakh), for which borrowers are willing to put in more money and, consequently, lower the LTV ratio.

While the National Housing Bank (NHB) hasn’t revised its risk weight norms for housing finance companies yet, CRISIL says such a move is likely, adding typically, NHB followed RBI, albeit with a lag.