With the aim of giving a boost to the housing sector and to accelerate growth in the economy, banks are demanding a reduction in the risk weights of home loans. A housing committee of Indian Banks' Association has requested the finance ministry to lower the prescribed weights on home loans products, so that more funds can be provided for home loans.
The suggested changes in the risk weights of housing finance products will support banks to advance loans at lower interest rates and also allow them to provide loans up to 85 percent of the market price of a house. Currently, banks can lend up to 75 percent of the value of the house.
It should be noted that if a category of loan has a high risk weight, then banks are required to secure them with more regulatory funds, in order to provide protection from possible defaults. As a result of this, banks either charge high interest rates or control their exposure to such loans.
On the matter, a banker said, "The proposed revised cut-off at 85 per cent LTV (excluding stamp duty, registration charges, value-added tax and other documentation charges) coupled with the reduction in risk weights will help banks lower the interest rate on housing projects."