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Housing loans may get costlier

Governor YV Reddy says RBI wants the housing sector to grow but not to an extent that there are certain risks.

india Updated: Apr 19, 2006 03:46 IST

Interest rates on housing loans beyond Rs 20 lakh may go up following RBI's decision to raise provisioning of standard advances on such credit.

Personal loans, loan and advances qualifying as capital market exposure and commercial real estate loans are also likely to be affected.

The credit policy, announced on Tuesday, raised provision of standard advances for residential housing beyond Rs 20 lakh to one per cent from the current 0.40 per cent. This means banks will have to keep aside Re 1 against every Rs 100 of good loans above Rs 20 lakh sanctioned to the housing sector, instead of the current 40 paise.

Defending it, RBI Governor YV Reddy said the central bank wanted the housing sector to grow but not to an extent that there are certain risks.

The credit policy also increased risk weight on exposures to commercial real estate to 150 per cent from the current 125 per cent. It would squeeze credit to such loans, putting pressure on interest rates.