Published date | 19 October, 2020

Measures implemented by RBI to enhance lending by banks towards Indian realty sector

The RBI circular also clearly specifies that risk weightage will undergo rationalization irrespective of the amount that is finally applicable. The standard asset provision of 0.25% will apply for all such home loans as well. The move will boost lending by banks towards the real estate sector. This is being deemed necessary for sparking economic recovery faster since the industry has a big role to play in generating ample employment throughout the country and is intrinsically linked with various important sectors as well. The loan to value (LTV) ratio is calculated by the division of the amount borrowed by the value of the property and this comes as a percentage.

The RBI (Reserve Bank of India) has implemented positive steps as part of its mission towards enhancing overall flows of credit to the real estate sector in India. The RBI has finally opted for rationalization of the loan to value (LTV) ratio and this will be applicable for all new housing loans which will be sanctioned until the 31st of March, 2022. On the basis of the notification by the RBI that has been officially issued, new housing loans will possess risk weightage of 35% in cases where LTV goes below 80%. On the other hand, risk weightage will be 50% for new housing loans where LTV is between 80% and 90% on an average. 

The RBI circular also clearly specifies that risk weightage will undergo rationalization irrespective of the amount that is finally applicable. The standard asset provision of 0.25% will apply for all such home loans as well. The move will boost lending by banks towards the real estate sector. This is being deemed necessary for sparking economic recovery faster since the industry has a big role to play in generating ample employment throughout the country and is intrinsically linked with various important sectors as well. The loan to value (LTV) ratio is calculated by the division of the amount borrowed by the value of the property and this comes as a percentage. 

The linking of LTV to risk weightage will naturally free up more additional capital to lend to borrowers at Indian banks. This may also lead to a reduction in lending rates and customers may find it possible to buy properties at attractive rates of interest in the bargain. The availability of spare capital for lending could be a positive move for the sector according to Tanuj Shori, CEO at Square Yards, India foremost real estate platform. Shori has opined that risk weightage is now tied to the LTV only as opposed to the earlier method of linking it to pricing and LTV. This will be a major boost for Indian real estate, particularly in the high-end and luxury real estate category which has seen marked downward demand over the last few months.

tanuj shori ltv real estate sector HOME LOANS

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Square Yards is a technology-enabled, global real estate aggregator and India’s largest player for primary residential real estate. It’s subsidiary Square Capital is one of the largest marketplace for secured mortgages in India. Square Yards platform offers an integrated consumer experience & covers the full real-estate journey from search, discovery to research, transactions, home loans and post-sales service – fully integrating buyers to an extensive network of 500+ partner real estate developers, and 90+ banks & NBFCs. Square Yards is led by accomplished professionals, ex-bankers, and Ivy school alumni and is backed by the competence of more than 2500 employees in 30 cities and ten countries.