Published date | 16 October, 2020

Tanuj Shori welcomes RBI decision to rationalize LTV and risk weightage ratio

Lending rates may become more attractive in the future in addition to the prime lending rates. Naturally, bank lending rates will come down since banks will have more capital to lend to borrowers. This will directly benefit the real estate sector according to the Square Yards CEO.

CEO at Square Yards, Tanuj Shori, has opined that the Reserve Bank of India (RBI) has taken a pro-active measure to boost real estate sector with its decision to rationalize the ratio of risk weightage to the LTV ratio for housing loans. This decision was taken on the 16th of October, 2020, for all new home loans that will be sanctioned till the 31st of March, 2022. 


LTV and risk weightage rationalization to boost housing loans and real estate sector 


Lending rates may become more attractive in the future in addition to the prime lending rates. Naturally, bank lending rates will come down since banks will have more capital to lend to borrowers. This will directly benefit the real estate sector according to the Square Yards CEO. The RBI notification states that new home loans with LTV lower than 80% will have 35% of risk weightage while it will be 50% for LTV between 80-90%. This decision will naturally enhance overall lending by banks to Indian real estate. This will also spark economic recovery since the real estate sector is a major generator of employment while having direct links to the future growth of several industries. 


0.25% as a standard asset provision will continue to be an applicable requirement as per the RBI notification. Shori has hailed the decision taken by the RBI, talking about how the linking of risk weightage solely to the LTV ratio is a pioneering step. Earlier, risk weightage was linked not just to the LTV but also to pricing. Shori has stated that this will be a positive measure for the future growth of Indian real estate, particularly for higher end and luxury properties which have already been witnessing downward trends in terms of customer demand. 


LTV is worked out by using the property value to divide the amount borrowed as the loan. For instance, if a home is priced at Rs. 1 crore and a down payment of Rs. 10 lakh is made, then the borrowed amount will stand at Rs. 90 lakh. Capital will be significantly freed up at banks for extra lending to the real estate sector. This may lower lending rates owing to the availability of spare capital at Indian banks. With more capital in hand, interest rates will naturally turn more attractive for borrowers in the near future. 

RBI Tanuj Shori Real Estate Sector Lending Rate Housing Loans Bank Lending Rate Square Yards

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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.