RBI rules on home loans credit negative for banks: Moody’s

MUMBAI: The Reserve Bank of India’s (RBI) move to reduce the amount of money that banks have to set aside as security on home loans is negative from the perspective of the ratings of lenders, Moody’s Investors Services said in a note on Thursday.

According to the rating agency, the move is credit-negative because lower capital requirements will weaken their protection related to the exposure to the housing sector and encourage greater lending.

Last week, the RBI reduced the amount banks have to set aside on home loans to 0.25%, or ₹250 per lakh from 0.4% or ₹400 per lakh previously.

The central bank also reduced the so-called risk weightage on home loans of between ₹30 lakh and ₹75 lakh to 35% from 50%, and over ₹75 lakh to 50% from 75%.

“Although lower risk weights would boost sluggish credit growth while limiting the effect on banks’ capital position, we believe competition for housing loans has significantly increased among banks and non-bank finance companies. Since 2015, housing loan growth has been roughly double that of overall bank credit,” said Moody’s.

The rating agency also said that bad loans in the housing loan segment has remained fairly stable.

However, its discussions with banks have confirmed that some areas of weaknesses have emerged in the luxury property segment following demonetisation.