The RBI in its October financial coverage assessment has stored the coverage charges unchanged however introduced a number of different steps that will convey the borrowing value down. Protecting different earlier cuts and measures into consideration, the value of funds of banks already appears to be coming down. A number of banks have reduce their MCLR over the previous couple of weeks. “Even though the apex bank has kept the rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates for their customers. During lockdown, the RBI reduced the repo rate which failed to bring cheer to the market, however, the rates today might help smoothen the economy to some extent and the benefits of which are yet to be fully passed on to the customers,” says Amit Modi, Director, ABA Corp & President (Elect) CREDAI Western UP.
The RBI has taken two key steps. One, the risk weightage for banks has been modified, and secondly, the co-origination of loans for NBFCs and HFCs has been allowed.
Risk-weightage of loans
In phrases of the rules on capital cost for credit score risk of particular person housing loans by banks, differential risk weights are relevant based mostly on the measurement of the mortgage in addition to the mortgage to worth ratio (LTV).
Recognising the important nature of actual property sector in the financial restoration, given its function in employment technology and the interlinkages with different industries, the RBI has determined, as a counter-cyclical measure, to rationalise the risk weights by linking them solely with LTV ratios for all new housing loans sanctioned as much as March 31, 2022.
Such loans shall entice a risk weight of 35 per cent the place LTV is lower than or equal to 80 per cent, and a risk weight of 50 per cent the place LTV is greater than 80 per cent however lower than or equal to 90 per cent. This measure is anticipated to offer a fillip to financial institution lending to the actual property sector.
Presently, the LTV ratios, risk weights and commonplace asset provisioning fee for particular person housing loans sanctioned are as below:
“At present risk weight on housing loans is based on the amount of loan and LTV. Now it is linked with LTV only. Earlier all loans above Rs 75 lakh were carrying the same risk weight irrespective of low LTV of loan now even big loans with low LTV will carry low-risk weight. This is good for HFCs lending big-ticket size loans with low LTV and also boost to the real estate sector. Lenders will offer differential interest based on LTV as their capital requirement will be lower with low-risk weight on low LTV,” says Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance
“The status quo on repo rate was expected as inflationary pressures made it difficult to cut rates further. Rationalising risk weightage on home loans and linking it to Loan to Value (LTV) ratio will effectively result in higher credit flow to the real estate sector, which is positive news for the sector,” says Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com
The Reserve Financial institution had, in 2018, put in place a framework for co-origination of loans by banks and a class of Non Banking Monetary Firms (NBFCs) for lending to the precedence sector topic to sure circumstances.
The association entailed joint contribution of credit score at the facility stage, by each the lenders as additionally sharing of dangers and rewards between them for making certain applicable alignment of respective enterprise targets.
Based mostly on the suggestions acquired from the stakeholders, to higher leverage the respective comparative benefits of the banks and NBFCs in a collaborative effort, and to enhance the circulate of credit score to the unserved and underserved sector of the financial system, it has been determined to increase the scheme to all the NBFCs (together with HFCs).
This may make all precedence sector loans eligible for the scheme and give better operational flexibility to the lending establishments, whereas requiring them to adapt to the regulatory pointers on outsourcing, KYC, and many others. The proposed framework shall be referred to as as “Co-Lending Model”. The revised pointers shall be issued by finish of October 2020.
“The announcement to allow co-origination of loans to all NBFCs and HFCs for priority sector lending should help banks and NBFCs supplement each other’s strengths for improving credit flow to the underserved borrower segments. While banks have a regulatory obligation to meet its priority sector lending targets, the NBFCs have played an important role in serving this segment. This would help transfer some liquidity from the banking system to the NBFCs and help improve overall credit flow,” says Naveen Kukreja – CEO& Co-founder, Paisabazaar.com