RBI helps co-op banks to lend more to housing sector
By Joseph Samson
Jun 18, 2008
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In a move that would make it easier for urban cooperative banks to extend housing loans, the central bank of the country, Reserve Bank of India, relaxed the risk provisioning norm for purchase of residential properties up to Rs 30 lakh.

This notification issued by the central bank is in pursuance of the annual credit policy announcement made by the Reserve Bank Governor Y V Reddy on April 29.

This step also follows a similar step taken by the RBI, on May 15, when it had relaxed the risk provisioning norms for housing advances by the commercial banks.

"It has been decided to enhance the limit of Rs 20 lakh to Rs 30 lakh in respect of bank loans for housing in terms of applicability of risk weights for capital adequacy purposes. Accordingly, such loans will carry a risk weight of 50 per cent," Reddy had said.

The new move would benefit the consumers as it would provide the urban cooperative banks additional capital for lending more to housing sector.

The amount of capital that the banks are required to set aside for each loan is decided by a minimum capital adequacy ratio which is prescribed by the central bank. Capital adequacy ratio is the ratio of a bank's net worth to its risk-weighted credit. The risk weightage, in turn, is the ratio which determines the credit risk in a particular loan asset.

Analysts feel that this move of the RBI of modifying the provisioning limit for housing loans has been undertaken in wake of the increasing property rates mainly in the urban centers.

The risk provisioning earlier was 75 per cent of the loan value between Rs 20-30 lakh. For loans exceeding Rs 30 lakh for purchase of residential property, the banks would have to make a risk provision on 75 per cent of the loan amount.

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